Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is a "CONTRARIAN" A contrarian investor is one who believes
in profits over popular opinion.
Contrarian investors are inclined to buck conventional trends - NOT follow the standard
perceptions of the market - and think the majority of investors out there are usually
wrong.
A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricing
in securities markets.
For example, widespread pessimism about a stock can drive a price so low that it overstates
the company's risks, and understates its prospects for returning to profitability.
Identifying and purchasing such distressed stocks, and selling them after the company
recovers, can lead to above-average gains.
Conversely, widespread optimism can result in unjustifiably high valuations that will
eventually lead to drops, when those high expectations don't pan out.
These general principles can apply whether the investment in question is an individual
stock, an industry sector, or an entire market or any other asset class.
Some contrarians have a permanent bear market view, while the majority of investors bet
on the market going up.
However, a contrarian does not necessarily have a negative view of the overall stock
market, nor does he have to believe that it is always overvalued, or that the conventional
wisdom is always wrong.
Rather, a contrarian seeks opportunities to buy or sell specific investments when the
majority of investors appear to be doing the opposite, to the point where that investment
has become mispriced.