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A Glimpse at Contrarian Investment & Some of Its Features

When an individual steps into the investment domain, s/he typically receives advice and tips from multiple sources. And one of the most basic suggestions ever doled out to an investor is to analyse the investment trends and market conditions before plunging in.

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A Glimpse at Contrarian Investment & Some of Its Features

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  1. A Glimpse at Contrarian Investment & Some of Its Features

  2. Introduction • When an individual steps into the investment domain, s/he typically receives advice and tips from multiple sources. And one of the most basic suggestions ever doled out to an investor is to analyse the investment trends and market conditions before plunging in. Typically, investors steer clear of bear market phases and prefer to carry out their investment in stocks and other assets when the general perception is more optimistic. However, contrarian investment swims against the tide. What is contrarian investment, and what are its distinct features? Let’s take a look:

  3. All About Contrarian Investment • Contrarian investment is a strategy in which the investor studies the current and predicted market conditions but chooses to go against the trends while investing in securities. • Typically, the investor believes that the stocks and other asset classes being traded during the bear market are undervalued; as a result, these may be better long-term investment avenues as compared to the purchasing them in a bull market scenario. • Contrarian investors undertake a considerable amount of risk while opting to invest during volatile conditions; however, this strategy may also be personally rewarding if s/he knows how to time the market.

  4. Some Quick Tips for Effective Contrarian Investment • Many stock brokerage firms and investment advisors suggest understanding contrarian investment as a strategy thoroughly before stepping into it. Here are some quick tips that you may want to consider before you begin your journey as a contrarian investor: • Carry Out a Thorough Technical Analysis: While contrarian investment goes against the general market trends, carrying out a share technical analysis is just as essential for contrarian investors as those opting for the conventional strategies. One may use different metrics to evaluate the share performance and the company’s net assets and revenue. These include the P/B ratio, P/E ratio, calculating the company’s NAV, evaluating its shares outstanding etc. Such a technical analysis allows one to understand what shares are undervalued and are likely to display an upward trend in the future.

  5. Be Ready With a Plan B: Contrarian investing has been rewarding for many investors and is a good strategy if carried out well. However, just like any other strategy, there is always a possibility of setbacks and challenges. In such cases, one should always have a backup plan in mind so that s/he can recover more quickly from the losses incurred. For example, you may want to chalk out the investment trends and try investing a small amount in an undervalued asset. Then, depending upon its performance, you may either increase the investment amount in this avenue or invest in an asset that is performing better.

  6. Invest an Amount You Can Afford to Lose: The thumb-rule while opting for an unconventional investment strategy is to take calculated risks. This means that you analyse your current finances and come up with a concrete financial planning strategy, where you designate a specific investment amount that you can safely afford to lose. You may then invest this amount in an undervalued asset and test the waters, understanding how contrarian investment works and, above all, what works best for you. • Consider Investing in Trending Avenues Simultaneously: Another way to take a calculated risk while engaging in contrarian investing is to invest reasonable amounts in trending as well as undervalued assets. This helps you to experiment with the market situation and understand which avenue is more lucrative. Then, based on these inferences, you may choose your investment strategy and continue in this path.

  7. Conclusion • Contrarian investment is a relatively unconventional albeit promising investment strategy that many investors are now exploring. Taking baby steps and understanding the market conditions thoroughly helps investors to engage in contrarian investments more carefully and efficiently. Consulting a reliable stock brokerage firm or share broker is always a good idea while exploring one’s investment options. We would be happy to help you formulate a concrete investment plan and utilize the most effective strategies to achieve the same!

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