Be taught Contrarian Investing

One single of the most effective investment techniques I have observed in my numerous decades in the investment also financial business, is labeled as "being a contrarian." Contrarians act in "outside the box" ways, interpreting seemingly bad news with a different position of view than conventional investors.

The Free Merriam-Webster online dictionary describes a "contrarian" as "a person who takes a contrary location or attitude; specifically: an investor who buys shares of stocks while most others are selling, and sells when others are purchasing." Numerous years ago, I was privileged to have a client who was the definitive "contrarian." He felt that there were terrific opportunities to succeed in investing if you devour contrarian philosophy. He demonstrated this to me in the 1970's when Washington Power was experiencing financial difficulties, also several individuals were selling off the stocks as well as bonds of the utility feverishly, anticipating that bankruptcy was nearing, as well as action was needed. My client, however, felt that the government could not afford to let the utility go under, also that level if the stock "tanked," he felt the bonds would have to be protected. Obviously, most investors disagreed, because the bonds were selling in the mid twenties (i.e. selling at only about twenty percent of their par significance). He felt that the utility would either eliminate or defer interest payments, as well as that would trigger level more panic for many investors. However, as he said, he wasn't looking for the bonds to pay interest/ dividends, nor was he hoping that the bonds would be restored to anywhere near par significance, mainly in the short-term.

His view plus outlook was meant for what he described as the intermediate term (three to five years), also meant for the bond's price to reposition into the fifties. Certain enough, within the shorter stop of his target area, the bond price was in the mid- fifties, typical investors were once again investing in the bond, also he had an easy time selling his bonds. Of course, he particularly enjoyed the fact that he had as well as doubled his investment in a relatively short period. During the more than a decade that I had a working relationship with him, I witnessed different other examples of his philosophy working effectively. However, there is one important caveat. Contrarian investing is not simply doing the opposite. It requires an analysis of the specific situation as well as evaluates the downside risk versus the upward potential.

I always found it interesting when sure individuals would ask me if the should hold onto a specific investment in their portfolio. I almost invariably answered the same method. " When you buy an investment, three things can occur. It can go up, stay steady, or go down. When you go to evaluate what you should do with a previous investment, don't evaluate it from the standpoint of what you originally paid. Simply think - if I were investing fresh money today, would I buy this investment. If the answer is yes, buy more. If the answer is maybe, keep some and sell some. If the answer is no, sell it all. It's that challenging, yet really that easy!"

When something becomes all the rage, whether a stock, bond or a commodity, should you buy? For example, we all hear concerning gold. A contrarian would maybe not buy gold now because of the high price, preferring to buy when there is bad news. For example, a few years ago, when Tyco was immersed in controversy, numerous investors sold on the bad news. Contrarian style would be to evaluate the fundamentals of the company, as well as in this case, when the price dropped rather dramatically, purchased additional shares.

Contrarian investing is not meant for everyone. It is not meant for casual or sluggish investors. However, for an individual who feels comfortable analyzing the "huge image," this philosophy can regularly be used quite effectively. I strongly recommend that before anyone invests, they fully find out all aspects, including potential risks plus rewards, costs, also all ramifications. You should speak to a trusted financial adviser.

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