Contrarian investing is a dynamic field and not a static one. The assumption that it’s a static field is held by the new breed of fashion contrarians, whose only contribution to this field has been to glamorise it and distort the true notion of being a contrarian investor. These fashion contrarians are no different from those with the mass mindset; they only pretend to do things differently, but the moment fear or uncertainty is in the air, they flee for the exits like bandits being chased by the hounds of hell. A true contrarian in most cases understands the basic rules of mass psychology. If you are not familiar with these rules, you are doing yourself a disservice and should catch up on them ASAP. These simple seven rules for contrarian investing will provide the newbie with a firm foundation on which he or she can build from.
Basic Rules for Contrarian Investors
Popular media (magazines, news outlets, newspapers, TV stations, etc. really ) should be treated in the same light as toilet paper; it has some use, but its function is to perform a distasteful action. Thus use these outlets to determine what the masses are frothing about and what you should avoid or start getting out of or into. Remember the emotions should be at boiling point. You do not oppose the masses just because they started to jump on the bandwagon; its, only when the bandwagon is overloaded and about to buckle under the load it’s carrying that you should look for an exit and vice versa.
Do not foolishly jump into Options until you grasp the key concepts of buying and selling stocks. In other words, understand when to buy and when to sell……… Make some money and then attempt your hand at options. The only exception to these rules is when you are selling covered calls and naked puts, both of which are safer than actually buying stocks if you understand the concept well. These two techniques can significantly boost your investment returns if you utilised properly. Options should also be part of an investment plan. Do not under any circumstance use all the funds in your portfolio to play options. That is a recipe for extreme pain and suffering.
Learn to Relax: Stress equates to a body not being at ease. If you are not at ease, you will most certainly perform dismally in the markets.
The law of balancing comes into play here. When you win a significant amount of money, help one person in your lifetime; your rewards will be 100 fold.