George asked in Business & FinanceInvesting · 1 decade ago

Is it not better to go contrarian when deciding when to get into the market?

Considering how the super Hedge Funds and big brokerage house behave! I see all the doom and gloom in the finance shows but there is alot of cheap stuff out there making for good oportunities to get in.


3 Answers

  • es
    Lv 5
    1 decade ago
    Favorite Answer

    It depends on your tolerance for risk. For instance, I thought that the financial stocks look real cheap now. There is an ETF called XLF that features financial stocks.

    But, there is still a lot of bad news to come, and more write-downs. So, I purchased call options that won't expire until January, 2010. That way, I limited my risk to the price of the options ( I can't lose more than the option cost) and give the financial sector two years to improve. For each option I bought, I control 100 shares of stock, but I don't have to worry about the day to day gyrations. It cost me $500.00 to control 100 shares, for two years.

    So, yes, you can be contrarian, but you have to be smart about it. You have to make a plan. Ask yourself why you think this may be a smart investment. Do the charting and check the fundamentals.

    Ask yourself how much you are prepared to lose if you are wrong. Ask yourself where you will get out if you are wrong--and where you will take profits if you are right. Then, stick to your plan.

    Source(s): experience
  • Anonymous
    1 decade ago

    Whether something is cheap or expensive depends on the reference point you are using to make your judgment. And if you happen to choose the wrong reference point, then you can end up loosing a lot of money.

    For example, Nasdaq looked cheap at 4000 after it declined from its top value of 5000. But all the contrarians who bought Nasdaq at 4000 probably lost a lot of money. Because Nasdaq kept going down all the way to 1100.

  • 1 decade ago

    Investment success is not about being a contrarian, it's about being right when everyone else is wrong, or just being right when everyone else doesn't care right now about whatever thing it is you are right or wrong about. Contrarians sometimes are wrong when the mainstream investors and media are right, so being a contrarian for contrarianism's sake is not profitable. Try reading some serious well-researched books, e.g. by Ken Fisher, Andy Kessler, Jeremy Siegel, about what works and what doesn't work in stock investing. These authors contradict each other, but that's ok, try to understand their argument and decide who is right.

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