There have been a great deal of books written about how to be a smart investor and how to time the market. In fact, many folks make a living on creating a”system” to time the market and then sell that system to other men and women. While there are a whole lot of indicators that can let you know when to spend and when to get out, one excellent way to invest is to be a”contrarian investor.”
A contrarian investor means that you are doing the reverse of what other individuals are doing. It takes a certain amount of finesse and “chutzpah” for a contrarian investor but it can help you make money, and it can save you from losing money.
Contrarian investing means that you will need to buy when other people are selling and sell when other individuals are buying. By way of example, during the technology boom in 2000, the individual who made money was the individual who sold their tech stocks when everyone else was feverishly purchasing. Likewise, whoever bought Asian stocks throughout the Asian flu is visiting — and will see — an appreciation in that investment because they have bought what other individuals are selling.
People buy and sell each and every day, so how can you know what to buy and what to sell? The answer to this question would be to go and take a look at the cover of investing and stock market magazines at your local magazine shop. On the cover, you will see the popular businesses that people are snapping up like crazy or dumping as rapidly as possible. If you have the popular ones, get out. If you don’t have the unpopular ones, get in. The popular ones may go up a little more, but it is going to go down because that’s what stocks do: they go up and they go down.
By selling when others are purchasing you are taking profits easily. By buying when others are selling you are snapping up chances at a discount. The idea appears crazy, but it works. Why? Because of the herd mentality. Many investors are undereducated when it comes to investing so that they follow the crowd. Willingly, they purchase and purchase stocks that go up in price and are shocked when it comes crashing down because they followed the herd and did not realize that stocks fluctuate.
Is contrarian investing foolproof? No. And no investing philosophy is foolproof. Contrarian investing isn’t meant to replace quality research and carefully contemplated transactions. What contrarian investing is meant to do is to help you take profits when they are available and purchase cheap stocks when they are available. It’s a fact that some stocks plummet for a reason but if you combine contrarian investing in some research, you will be able to buy stocks when they are unpopular and ride them back to the top!