Contrarian investors are the only ones who will actually make money in the long run right? (READ BELLOW)?

Question

If you think about it in the long run that rule would HAVE TO be true. There are no absolutes in the market sometimes the crowd IS right but in general they are not. IF you think about it, if all you had to do to make money in the market was to follow what everyone else was doing then you would just ask all your friends, your broker and people on wall-street what they are doing and follow them and EVERYONE would all be rich and we would live happily ever after. Of course what I have noticed is if you do the exact opposite of what most people are doing you usually win. It has to make you feel uncomfortable though becasue if you just want to be comfortable and invest in Apple you probably won't make money since it's what everyone else is doing but if a stock has just crashed 15% in one day that's uncomfortable and scary but you WILL probably make money. It's almost like the more people hate a stock and it falls the more you should want it and the higher it goes the more you should start to hate it. Companies rarely go broke except for a few like Enron and Delta air lines even the worst of them like Freddie mac K-mart and Uhal have gone BACK UP or merged. The crowd is rarely right, most people rely on emotions with over pessimism or optimism. Most market moves are way over EXAGGERATED as companies can't be doing 20% worse or better in one day unless they were being attacked. In life things that are doing VERY BAD tend to get better and things that are doing VERY GOOD tend to get worse. As George Soros said “The worse a situation becomes the less it takes to turn it around, the bigger the upside.” It's true!! How much you want to bet the people buying Citi financial Sirius satellite radio and Fannie May. Will do BETTER in the next 5 years than people buying Apple, Graham corp, and Monsanto? Everyone likes and knows about the last three I stated and remember we can't ALL make money here. Even as bad as Freddie Mac was doing as soon as help was on the way from the gov (usually happens in some form but not from the gov) it shot up. Opinions?

Answer 1

Let us know how that strategy works out for you. In the stock market nothing is ever as easy it appears, except losing money.

Answer 2

Did you know that the national weather service, when testing out a new theory that is intended to better predict weather patters, uses the following hurdle test:

Using this strategy, are you more likely to be more correct than if you had simply said that what will happen today is exactly what just happened yesterday.  If it rained 1.5" yesterday, it will rain 1.5" today; if it was 78 and overcast yesterday, then I predict that it will be 78 and overcast today.

The simple truth is that momentum is a fairly accurate predictive tool.  If the market was up slightly yesterday, odds are fairly good that it will be up slightly again today.

Predicting opposites, on the other hand, is incredibly inaccurate.  If the market is up 200 today, are you really going to bet that it will be down 200 tomorrow?

Remember, "contrarians" of the style that you have proposed would have bought big when the market was down 5%, and they would have lost money in the interim.  Your statement has one unfortunate flaw: you ignore risk.

Yes, assuming that the economy and housing markets start doing a bit better, then Fannie and Freddie will recover, as well, and those who bought at the bottom will have made money.  But this is a risky proposition: Fannie and Freddie might not even be public companies anymore by the time that happens.

Answer 3

Those who make money in the markets are the ones who know what it is they are doing. It is the same in any business venture--if you opened a restaurant and do not know a thing about running that business, you will lose money.

The ones who make money have paid their dues. They have been at it for a long time. They have failed a lot of times, learned their lessons and are back on their feet the very next day.

They have a method or discipline that they follow, and every loss they make helps them to fine tune that method.

People only hear about how good this guy is or how much money they make. What the media doesn't show is the time and effort that was put into perfecting their trade.

Everyone wants the short cut. Tell me your secret so I can do the same thing and get the results you are getting.

Richard Dennis, one of the more successful traders in the US, once said that even if he were to publish his trading secrets in the New York Times, not everyone who reads about it will make money out of it.

Hope this input helps. Good luck!

http://jsforex.blogspot.com

Answer 4

Warren Buffet is not contrarian.

If that is not enough, contrarian investors do well in bear markets when a bubble bursts.  In a bull market, contrarian investors get killed.  Imagine betting against oil 2 years ago, against gold, copper, agriculture.  You would have lost a fortune.  Betting against tech before the tech bubble burst, or against financials or housing before the housing bubble burst is not being contrarian, it is being ahead of the curve.      

Answer 5

If everyone became contrarians there would be no one to be contrary with.Like anything to do with markets, there is never only one answer, like you assume.