Why You Need To Practice Contrarian Investing

by Hank Coleman

warren-buffettContrarian investing is an investment strategy that goes against popular convention. A contrarian investor buys or sells stocks or investments when other investors are doing the opposite.

Contrarian investing is an excellent investment strategy to help you find great stocks at a good value that are out of favor with the general public.

I’m a contrarian investor. And, I think you should be one too!

Famous Contrarian Investors

Contrarian investing is best illustrated by looking at some famous, successful individuals. Warren Buffett is a great example of what a person can achieve if he or she believes in buying when most people are selling and vice versa. Buffett himself has long held that the best advice he can give to any investor is to be patient.

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Warren Buffett is famous for saying, “Be fearful when others are greedy, and greedy when others are fearful.” Tweet This!

Patience Is Key To Contrarian Investing

Patience pays off for many contrarian investors. For instance, if an investor buys shares in a company at a very high price when other investors are selling and making a quick profit in the short term, the contrarian knows to hold on the shares.
If the contrarian investor holds on to the shares for another for a long period of time, three or five years for example, that high price will most likely rise.

Of course, all situations are different. In essence, this investor has made much more in terms of ROI or return on investment than his or her counterparts by being patient, thinking in the long term, and being willing to wait for market corrections.

Contrarian Investing Is Long Term

Many stock market investors adhere to the contrarian philosophy of investing. If a stock’s price is driven down because of poor performance, economic downturns, or a company’s bad publicity for whatever reason, many investors will leave this type of stock alone.

However, the contrarian investor buys in at the low price because he or she has researched the facts regarding the stock and has reasonable belief that it will rebound, making their investment pay off in a big way.

Buffett illustrates the underlying belief in contrarian investing. He insists that those who invest should be fearful when others are greedy and greedy when others are fearful of certain stock prices. This type of investor should look to history for a guide.

Bull markets tend to last about 36 months long. But, when a bull market such as the one in the past decade go on for longer than this, it is time to take a close hard look at those underperforming stocks that other investment professionals are leaving alone.

It can be helpful to hold a contrarian investing mindset when doing any personal investing. Always take a careful look at your current portfolio and weigh it with the current stock trends.

Do research and use judgment. It is important to review and revise a portfolio regularly, but when this is done with an understanding of what contrarian investing is, it can help that portfolio grow nicely over time.

Clearly the answer to the question “What is contrarian investing?” is that it is a type of investing that only a rare few are capable of doing successfully. That is usually because these people are able to forecast trends, spot mismatches in the market, and they have the patience, as with Warren Buffett, to ride the ups and downs of every market.

Be sure to do your own research and use common sense before investing using any method.

Are you a contrarian investor? Why? I’d love to hear your thoughts in the comment section below.

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 592 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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{ 1 comment… read it below or add one }

Kate @ Money Propeller

I totally agree that you need to do research and use judgment.

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