investing guide

Contrarian Investing

So what is contrarian investing anyway?

Well as the George Constanza from Seinfeld once said, "No, no, no, wait a minute, I always have tuna on toast. Nothings ever worked out for me with tuna on toast. I want the complete opposite of tuna on toast. Chicken salad, on rye, untoasted ... and a cup of tea. Yes, I will do the opposite. I used to sit here and do nothing, and regret it for the rest of the day, so now I will do the opposite, and I will do something!"

A contrarian investor does exactly the opposite of what everyone else is doing. They look for high-quality companies that other investors have forgotten about. They love it when media reports cause other investors to panic and sell their stocks of an otherwise great company. This is because they can then come in and scoop up these stocks at a great value after the panic sell-off is done.

In the late 1990's when everyone was buying technology stocks contrarian investors stayed away from them. After the technology stocks came crashing down; contrarian investors came in and scooped up well-known technology stocks like Xerox for great prices.

The difficulty in this approach is that an investor has to know how to use fundamental analysis to figure out what the true value is for a company. The contrarian investor needs to figure out if a company is unjustly undervalued, or if it is simply a lemon.