Contrarian Investing Is a Relatively Simple Concept
Contrarian investing is a dynamic field and not a static one. Anything that is static cannot by definition win over the long run, for the playing field is dynamic and constantly changing. What worked in yesteryear is not guaranteed to work today and that is why such a large number of value investors have been left in the dust the can waiting vainly for their day in the sun.
The assumption that it’s a static field is held by the new breed of fashion contrarians, whose only contribution to this field has been to glamorise it and distort the true notion of being a contrarian investor. These fashion contrarians are no different from those with the mass mindset; they only pretend to do things differently, but the moment fear or uncertainty is in the air, they flee for the exits like bandits being chased by the hounds of hell. A true contrarian in most cases understands the basic rules of mass psychology. An investor is doing himself or herself a disservice if they are not familiar with the basic concepts of Mass psychology and contrarian investing.
Another very important subject to come to terms with today is psychological manipulation or something we at the tactical Investor refer to as the war on perceptions.
True Contrarian Investors Should Understand The BasicPsychologyhology
At the Tactical Investor, while we embrace the concept of contrarian investing our true focus is on joining the key rules of contrarian investing with the powerful concept of mass psychology. We believe this is the most robust system out there as psychology is the key driving force behind almost every human action.
Understanding the basic tenets of Contrarian investing are both simple and easy as indicated the simple list of rules below. These simple rules could prove to be useful to both the novice and the seasoned trader. Discipline and patience are essential traits if one wants to succeed; nothing comes easily, for if it did, everyone would be able to do what you are doing.
Straight forward Ideas for Contrarian Investors
1) Popular media (magazines, news outlets, newspapers, TV stations, etc. really ) should be treated in the same light as toilet paper; it has some use, but its function is to perform a distasteful action. Thus use these outlets to determine what the masses are frothing about and what you should avoid or start getting out of or into. Remember the emotions should be at boiling point. You do not oppose the masses just because they started to jump on the bandwagon; its, only when the bandwagon is overloaded and about to buckle under the load it’s carrying that you should look for an exit and vice versa.
2) Technical analysis plays a key part when it comes to investing, regardless of whether you choose to be a contrarian investor or not. It is imperative that you take the time to understand the basic tenets of this very important field. Do your best not to follow or focus only on the most popularly used Technical analysis indicators. You will be amazed at how effective some of the lesser known indicators are once you get to understand how they function and operate.
3) Spend time understanding the markets you are going to target or the sectors of the stock market you intend to play. We have put up an extensive list of resources, all of which are free here. Free Trading Resources
4) Formulate a sound plan. Don’t be an imbecile and sit there wishing and hoping to catch a home run. Those that adopt such notions, always catch a falling dagger, a process that is fraught with pain and misery. The plan should include profit targets on each and every trade, and, an exit plan, in case the trade does not work out.
5) Do not foolishly jump into Options until you grasp the key concepts of buying and selling stocks. In other words, understand when to buy and when to sell. Make some money and then attempt your hand at options. The only exception to these rules is when you are selling covered calls and naked puts, both of which are safer than actually buying stocks if you understand the concept well. These two techniques can significantly boost your investment returns if you utilised properly. Options should also be part of an investment plan. Do not (under any circumstance) use all the funds in your portfolio to play options. That is a recipe for extreme pain and suffering.
Additional Tips for Contrarian Investors
- A real contrarian only jumps into the investment because the asset is trading at mouth-watering levels. Moreover, blood is flowing freely in the streets. Buy when the crowd is paralysed with fear and fear when others are buying hand over fist.
- When you are overly confident or feeling Euphoric, flee for the exits.
- Never get a hot head and think you know it all. Even the best can be taken out. Keep your mental stops tight in this volatile market.
- Contrarian investing is really about overcoming your emotions. Use Fear and Panic to your advantage by taking a position that is contrary to that of the crowd
- When you take a position and people look at you with disdain or shock, you know you are doing the right thing!. When they pat you on the back or on the rear it’s time to flee for the exits. Buy low. Sell high.
Two more tips for contrarian investing students
- Learn to Relax: Stress equates to a body not being at ease. If you are not at ease, you will most certainly perform dismally in the markets.
- The law of balancing comes into play here. When you win a significant amount of money, help one person in your lifetime; your rewards will be 100 fold.
Quotes from Notable Contrarian Investors
Sir John Templeton
“To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”
“Bull markets are born on pessimism, grown on scepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
“If you want to have a better performance than the crowd, you must do things differently from the crowd.”
“Invest at the point of maximum pessimism.
The four most dangerous words in investing are ‘This time it’s different.’”
“If we become increasingly humble about how little we know, we may be more eager to search.”
“I am very focused on understanding the downside”
“If everyone is going left, look right”
“There is tremendous value in being a good listener”
“I run my company as a meritocracy with a moral compass”
“In any negotiation, I believe in leaving a little bit on the table. And in any relationship, I believe in sharing the stakes.”
“Reputation is your most important asset. Everything you do, everything you say, is part of the permanent record. Your name reflects your character”
“You don’t go wheeling and dealing for the money, you do it for the fun. Moneys just a way of keeping score”
“I simply don’t buy into many of the made-up rules of social convention”
“The bottom line is if you’re really good at what you do, you have the freedom to be who you really are”
“All the opportunity in the world means nothing if you don’t actually pull the trigger”
“I grew up believing that anything is possible. And when you’re not aware there are any limitations, nothing stops your from trying”
“Where there is scarcity, the price is no object. This basic tenet of supply and demand would later become a governing principle of my investment principle”
New Market Notes June 6, 2019
Investors should start getting primed for forever QE, though the media is likely to assign more attractive names to make the concept palatable to the masses. The US and by default worldwide debt will soar to outrageous levels in the years to come; get used to it and embrace this fact for nothing has changed since we got off the Gold standard and nothing will change until the system collapses, though waiting for that day might prove to be fatal as the masses are completely asleep.
If a national debt of almost $22 trillion is appalling, then try to envision how you might feel when the debt soars to $100 trillion. At this point, logic kicks in and one is rightly inclined to state that that the masses would never stand idle and allow such a dangerous development to proceed without taking a stand. Go back to 1900 and then fast forward to the present. Once upon a time, our national debt was less than 1 million USD.
Now if you told people back then it would be at $22 trillion one day; would the reaction not be the same? We will go on record to state that there is a good chance that worldwide debt will surge to $1000 trillion before the masses discover the emperor is naked, fat, bald and ugly; until then they will continue to believe he is a handsome prince. It currently stands at $247 trillion
Contrarian Investment Resources
Contrarian Investing Game plan
All backbreaking corrections should be embraced for the Fed is never going to allow this market to crash. Case in point, the backbreaking so-called market crash of 1987 and the even scarier one of 2008. Buy the noise and the sell the crap for the trend is always your friend unless you fight it.
Other Articles of Interest
BTC vs Gold: The Clear Winner Is … (Aug 11)
5 rules of contrarian investing, Forbes, https://www.forbes.com/sites/investor/2014/04/28/5-rules-of-contrarian-investing/
Contrarian investing-buy when there is blood in the streets, Investopedia, https://www.investopedia.com/articles/financial-theory/08/contrarian-investing.asp
Why are contrarian investors rare, Quora.com, https://www.quora.com/Why-are-contrarian-investors-rare
Sir John Templeton’s Template for success, Templeton.org, https://www.templeton.org/about/sir-john
Five pieces of advice from John Bogle, NY Times, https://www.nytimes.com/2019/01/17/business/mutfund/john-bogle-vanguard-investment-advice.html
The armchair millionaire, Lewis Schiff, https://www.goodreads.com/book/show/236260.The_Armchair_Millionaire
Extraordinary Popular Delusions and the Madness of Crowds, Charley Mackay, https://www.gutenberg.org/files/24518/24518-h/24518-h.htm
Herd mentality: Are we programmed to make bad decisions?, Science Daily, https://www.sciencedaily.com/releases/2014/12/141216212049.htm
Mob Mentality: The Madness of the Crowd, Brain World, https://brainworldmagazine.com/mob-mentality-the-madness-of-the-crowd/
Propaganda and Indoctrination, Noam Chomsky, https://chomsky.info/20001210/
The Crowd, A Study of the Popular Mind: Gustave Le Bon, http://www.gutenberg.org/ebooks/445
EXCESSIVE SOCIAL MEDIA USE IS COMPARABLE TO DRUG ADDICTION, MSU Today, https://msutoday.msu.edu/news/2019/excessive-social-media-use-is-comparable-to-drug-addiction/
6 reasons why most people lose money in the stock market, theladders.com, https://www.theladders.com/career-advice/6-reasons-why-most-people-lose-money-in-the-stock-market
Random Walk Down Wall Street, Burton Malkiel, https://cutt.ly/5slKVMl
How a cat & some Monkeys Outperformed experts, The Fool, https://bit.ly/2ZYQljy
New Study Suggests Excessive Social Media Use Is Comparable to Drug Addiction, addiction centre, https://www.addictioncenter.com/news/2019/09/excessive-social-media-use/