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A Guide To Contrarian Investing Strategy 

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23 Sep 20236 mins readBy MOFSL

Contrarian investment strategy approach is upon the basis of thorough research of the majority of market participants that mislead the prices of assets and exhibit herd mentality. It requires a deep understanding of market trends and patience.

What is Contrarian Investing?

It is one of the investment styles where investors look for profitable opportunities by going against market sentiments. Contrarian investors enter the market when others exist and exist when others are entering. It requires a long-term perspective, patience, and an ability to identify pockets of opportunities between negative market sentiments.

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This investment strategy is adopted by long-term investors. These investors study any movement in the market to determine the direction of the herd investors and move exactly opposite to them. It can be applied to entire markets, individual stocks, or even to an industry as a whole. The decisions made in contrarian investing are planned actions backed by intensive market research. This investment strategy requires a thorough understanding of the stock market. Even the smallest neglect of details can end up losing a pile.

Fundamental Principles of Contrarian Investing-

The principles of contrarian investing concentrate on identifying overvalued and undervalued assets and inefficient market sentiments. A successful investor is willing to try to dedicate time to evaluate market trends and conditions long-term. These investors are not in search of short-term gains.

Contrarian investors aren’t looking for short-term gains. They identify opportunities where the majority opinions are wrong, and their investment will pay off while the herd investors readjust their outlook. This investment strategy offers above-average returns while involving some risks, such as short-term losses and mistiming the market.

Characteristics of Contrarian Investing-

  • Intensive Market Research- Contrarian investor tends to spend more time on intensive market research, studying trends and investor sentiments.
  • Patience- This investment strategy requires a lot of patience. Contrarian investors go against market trends and must stay calm without any regrets about their decisions. It takes time for the market to understand the value of the undervalued asset.
  • Independent Decision- Contrarian investors go against the market sentiments. They opt for a different way to seek investment opportunities and go against the herd investors. They think and make decisions independently.
  • Long-term goals- Contrarian investors always think about the long-term perspective. They target falling stocks in the current market, which have the potential to reach high in the future.
  • Discipline- They are disciplined and follow the investment they have targeted even when the market is against it.

Conclusion

Contrarian investing offers above-average returns and minimises exposure to market bubbles. But it also involves risks if the market research is not thorough. Investors navigate every challenge and then make informed decisions. They spend time evaluating market, go against prevailing market sentiments to generate profits. Practising a contrarian investing strategy provides exposure to stock market conditions and diversifies risks.

 

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Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
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