The Biggest Mistake Stock Traders Make

By James Anderson

The saying goes, ?Nothing ventured, and nothing gained.? This proverb can very well be applied to the practice of contrarian investment. To the layman, contrarian investment, is just what it?s name sounds like. It is the practice of investing based on one?s own personal choices and techniques, rather than following the ongoing market trends at large. It involves believing in yourself and doing what you think is right, rather than following conventional mentality.

Contrarian investors think beyond the crowd. They do not let themselves be hemmed in by the beliefs of other people. They chose to be rebels in the rigidly conformist world of financial investment. This practice of contrarian investment involves not paying attention to the shockwaves of gloom and depression that often paralyze the market and working on one?s own. This also prevents very common errors that occur like mispricing or over pricing. Contrarian investment basically prevents people from falling prey to the conventional traps that investors working in tune with the market trends usually fall into. This investment practice is very target oriented and works only for the section of the target clients that you have created for yourself. In this you cannot hope to keep everybody happy. Contrarian investment only works for those target oriented and specific clients. Basically it is a very individualistic practice.

This practice is very flexible and helps to adjust to the changing market situations which are usually very volatile and always in a state of flux. Because of its constant refusal to follow market trends, it is easier to return to a state of profitable business after a state of depression. Again, it is easy to sell old and distressed stock, and still make a profit out of it. When the prices of stocks are spiraling downward, the situation can be controlled with the help of contrarian investment. It helps you to prepare for the worst, because you will know how to handle your business when any conflicting situation occurs, because you are never working according to conventional market expectation anyway. You must realize that this practice does not involve reckless risk taking.

In contrarian investment, just because conventional wisdom is not used does not mean that there are no principles involved. There are certain marketing techniques that are followed. In a nutshell, that is flexibility. The business has to be twisted according to the mood or rather, the condition of the economy. For example, in the times of a boom, there will be more clients who will want to enter the investment program while the reverse happens in a down turning economy. Also, the market has to be valued and the investment priced in such a manner that the market does not get overvalued and also, the actual condition of the economy is well analyzed.

Contrarian investing looks out for quotes that are stagnating or being undervalued because of being confined to an economy in a state of recession. This practice involves buying these quotes out. John Neff, a prominent investor says that contrarian investment defines the market in terms of value. Thus it can be called a theory of finance metrics and the P/E ratio or the value input of these metrics must be keenly watched and monitored. - 23212

About the Author:

James Anderson the CEO of the website http://www.thecontrariantrader.com helps people to generate profits through making investments in a manner that totally differs from the belief of the people and the experts in the field. They often take profits after holding a position for just 1 week.