Wednesday, June 5, 2013

Investment Style Series: 2) being contrarian

Another investment style one may use is to be contrarian, it means doing the exact opposite of what the mainstream fad currently is. One needs a lot of chutzpah to pull this off since it's not easy to be standing against the prevailing wisdom and doubts about your decision would surface from time to time. Would you have invested in real estate during the asian financial crisis of 1997 when there were plenty of unfinished buildings in the city? Would you be buying stocks during the global financial crisis of 2008 when the price was dropping of a cliff? Consequently, would you be selling Philippine stocks today when they are making record highs? If the answer is yes then you may be a contrarian investor. The rationale is pretty simple but the psychological and emotional  toll can be overwhelming for most investors. Buying when everyone else is selling would ensure that you get a lot more for your investment money, whatever the asset class. The opposite is also true, selling when everyone is into a particular asset would ensure that you get the highest returns. The catch is that you need to be invested long term since it takes a lot of time for an asset's price to recover. Patience is essential as some recovery may even take decades to be realized. The good news is that the returns are exceptionally high. So if you've got nerves of steel with the patience of a saint, contrarian investing may just be your ticket to wealth.

3 comments:

  1. I've been trying to meld contrarian with buy-and-hold.

    So far, I haven't had much success, mostly because no one was selling and when the corrections hit, I didn't have much a warchest. sigh!

    Well, I've got time until the bear hits, so hopefully I can build up an adequate warchest.

    great series, by the way!

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    1. Business opportunities are like buses, there's always another one coming.
      -Richard Branson

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    2. You were right. we just had a terrific sale. Alas, I was again unprepared.

      But I won't be next time. I finally understood the secret - keep some in cash. hehe

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