What it is
Contrarian investing is an investing strategy that involves intentionally going against what most people are doing. This means selling when others are buying and buying when others are selling.
The goal is to buy at very low prices when people are panic selling and sell when prices have potentially peaked due to inflated expectations.
What it means for you
Contrarian investing can be used for investing in stocks as well as other assets whose values can go up and down within a short period. This strategy can also be applied for investing in entire markets and sectors.
It is based on the idea that many investors tend to overreact to news and are inclined to follow the herd. This biased thinking can cause people to get rid of investments when there’s bad news, even if those assets are fundamentally strong.
Herd thinking can also lead to overinflated prices as people pile into investments without assessing their real value or thinking long term.
Before you do contrarian investing, make sure it fits your preferred investing style and personal situation. You also must be skilled enough to tell when prices are bottoming out or are nearing their peak.
If you get your timing and forecasts wrong, prices may continue to slide after you buy, or they may continue to go up after you sell.
For long-term investors, this idea can instead serve as a reminder not to react quickly to market changes or copy other people’s investing moves blindly.
