Investment style: Going Against the Grain

Investment style

February 12, 2023

Investing is a complex and multifaceted field, with various methods and strategies to choose from. Among the popular approaches are mass psychology and contrarian investing, which are based on completely opposing philosophies. In this article, we will delve deeper into both methods and analyse the core differences between them.

Mass psychology investing is a style of investing that takes into consideration the emotional and psychological state of the masses. This approach is based on the notion that market movements are driven largely by the masses’ emotions and collective behaviour, and that these emotions can be used to forecast market trends. Investors who follow this style will often wait for a peak of panic or euphoria before making a move, either buying when prices are low or selling when prices are high. This approach has been utilised extensively by individuals such as Sol Palha, William J. O’Neil, etc who have written extensively on the topic.

Contrarian investing, on the other hand, is an investment style that entails going against the flow and taking positions that are contrary to those of the masses. This approach is founded on the belief that the masses are frequently wrong, and it is possible to profit by taking positions that are opposite to their beliefs. Contrarian investors often enter positions early, before the masses have fully embraced a particular market, and they are willing to hold these positions even as the market moves against them. Prominent investors like Warren Buffett and Benjamin Graham, who have shown that a contrarian approach to investing can lead to long-term success, have popularized this investment style.

So, what distinguishes mass psychology and contrarian investing? The key difference lies in the fact that mass psychology investing is based on the masses’ emotions, while contrarian investing is based on taking a position opposite to the masses. Another critical difference is that mass psychology investors often wait for a boiling point of panic or euphoria before making a move, while contrarian investors enter positions early and are willing to hold them even as the market moves against them.

In conclusion, both mass psychology and contrarian investing are valid investment styles, and both have proven effective in specific market conditions. However, it’s crucial to remember that no single investment style is always the best, and the ideal investment style will depend on several factors, including your personal investment style and current market conditions. If you are thinking about adopting one of these styles, it’s essential to do your due diligence and seek the advice of a seasoned investment professional. Remember, your investment style should align with your goals, risk tolerance, and personality.

References:

These articles provide a comprehensive overview of Mass Psychology and Contrarian investing, explaining the key differences between the two approaches and the pros and cons of each. Additionally, they provide examples of how these approaches are applied in the real world and offer insights into how you can use these strategies to achieve your investment goals.

Mass Psychology in Investing” by Richard Smitten https://www.investopedia.com/articles/investing/021915/mass-psychology-investing.asp

Mass Psychology; the missing ingredient to Financial Success by Sol Palha: https://tacticalinvestor.com/introduction-to-mass-psychology

Contrarian Investing: The Pros and Cons by Haris Anwar https://www.investopedia.com/articles/investing/101015/contrarian-investing-pros-and-cons.asp

Contrarian Investing: What It Is and How to Do It by Nicholas Rossolillo https://finance.yahoo.com/news/contrarian-investing-what-how-130157151.html

The Psychology of Mass Movements in Investing by Daniel Cross https://www.mybanktracker.com/blog/investing/mass-movements-investing-psychology-4626

Contrarian Investing: Capitalizing on Fear and Greed by Billy Duberstein https://www.thebalance.com/contrarian-investing-capitalizing-on-fear-and-greed-2465369

O’Neil, William J. “How to Make Money in Stocks: A Winning System in Good Times or Bad.” McGraw-Hill Education, 2009.

Buffett, Warren E. “The Essays of Warren Buffett: Lessons for Corporate America.” Council Oak Books, 2008.

Graham, Benjamin. “The Intelligent Investor.” HarperBusiness Essentials, 2006.

 

Other Articles of Interest

Herd Behavior: A Dangerous Trap for Investors

Herd Behavior: The Perilous Path to Market Missteps

Herd Behavior: A Dangerous Trap for Investors June 23, 2024 Introduction: The Allure of the Crowd In the complex investing ...
Disciplined Growth Investors: Your Key to Big Return

Disciplined Growth Investors: Path to Maximum Gains

Disciplined Growth Investors: Your Key to Big Return June 23, 2024 Disciplined growth investors focus on long-term growth rather than ...
What is the bandwagon effect. Silly people following Simon

What is the Bandwagon Effect? Exploring Its Impact

What is the Bandwagon Effect? Unravelling Social Influence & Cognitive Bias Updated June 18, 2024 The bandwagon effect is a ...
Stock Market Crash Forecast: Ignore the Hype, Focus on the Trend

Stock Market Crash Forecast: Ignore the Hype, Focus on the Trend

Stock Market Crash Forecast: All Rubbish, Focus on the Trend June 17, 2024 The stock market crash forecast is an ...
The Stock Market Forecast for Next 3 months: its better than you think

Stock Market Forecast for Next 3 Months: Trends to Watch, Predictions to Ignore

Stock Market Forecast for Next 3 Months: Trends Over Predictions Updated June 17, 2024 Before embarking on the endeavour to ...
Benefits of Investing Early: Building Wealth and Achieving Peace of Mind

Benefits of Investing Early: Wealth and Serenity

Benefits of Investing Early: Building Wealth and Achieving Peace of Mind  Introduction: The Transformative Power of Investing Early Investing early ...
Stock Market Predictions Today: Americans Fear The Market

Stock Market Predictions Today: Ignore the Noise, Follow the Trend

Stock Market Predictions Today: Rubbish, Focus on the Trend as that is all that matters June 15, 2024 In the ...
Share Market Fear and Greed Index: Ignore It, Focus on the Trend

Share Market Fear and Greed Index: Ignore It, Focus on the Trend

Share Market Fear and Greed Index: Ignore It, Focus on the Trend June 15, 2024 In the ever-evolving financial markets, ...
Why is Inflation Bad for an Economy: Enriching the Few, Hurting the Many

Why is Inflation Bad for an Economy: Enriching the Few, Hurting the Many

Why is Inflation Bad for an Economy? Feeding the Rich at the Expense of the Poor June 12, 2024 The ...
What to Do When the Stock Market Drops: Buy Big

What to Do When the Stock Market Drops: Back the Truck Up and Buy

What to Do When the Stock Market Drops: Buy Big June 11, 2024  Introduction: Embracing Market Crashes with a Contrarian ...
Small Dogs Of the Dow

Unleashing the Power of Small Dogs Of the Dow

Small But Mighty: Unveiling the Power of Small Dow Dogs Updated June 08, 2024 In the intricate world of stock ...
Stock Market Chaos: A Trap for the Ignorant and Uninformed

Stock Market Chaos: A Trap for the Ignorant and Uninformed

Stock Market Chaos: The Peril of Ignorance and Misinformation June 7, 2024 The Folly of the Masses Throughout history, the ...
Dow Jones Forecast: Wild Swings and Market Surprises Ahead

Dow Jones Forecast: Navigating the Ups and Downs

 Dow Jones Forecast: Navigating the Waves of Opportunity June 7, 2024 In the treacherous waters of the financial markets, where ...
Best Time To Buy Stocks is when people panic

Best Time To Buy Stocks: Embrace Panic & Seize Opportunity

Best Time To Buy Stocks: Corrections Create Opportunities Updated June 02, 2024 The best time to buy stocks is when ...
Common Sense Investing Book: Ironically, It Isn't So Common

Common Sense Investing Book: Ironically, It Isn’t So Common

Common Sense Investing Book: Why Common Sense is Surprisingly Rare June 2, 2024 A Journey Through the Labyrinth of Financial ...