By Parthajit Kayal & Moinak Maiti
In the realm of investment, it is commonplace to succumb to herd mentality. However, genuine investment triumph hinges on distinguishing oneself from the crowd and adopting a contrarian mindset.
The contrarian mindset revolves around challenging established wisdom and scrutinising popular convictions. It involves seeking undervalued assets, pinpointing contrarian investment approaches, and displaying a willingness to undertake calculated risks when others hesitate. Here are pivotal principles to facilitate cultivation of a contrarian mindset in your investment strategy
Independent thought
This entails conducting personal research, scrutinising data, and formulating autonomous conclusions. Avoid relying solely on others’ opinions (especially investment tips available on the internet) or blindly trailing the herd. Challenge prevalent assumptions and delve deeper to unearth concealed opportunities.
Long-term perspective
Embracing a long-term perspective is paramount in contrarian investing. Look beyond fleeting market trends and zero in on the fundamental value of the assets. Patience and a willingness to retain investments over the long haul can yield substantial returns, given the irrationality of market sentiments.
Contrarian analysis
Contrarian investing means when everyone’s buying, you are contemplating selling, and vice versa. This might entail investments in out-of-favour sectors or purchasing stocks experiencing temporary setbacks but grounded in solid fundamentals. Utilise data to identify global macro trends, market inefficiencies, contrarian indicators (bearish/bull bets).
Risk management
Adopting a contrarian mindset does not equate to reckless risk-taking. Understand the risks tied to each investment and be ready to cut losses if necessary. Adequate risk management positions you for success even in contrarian ventures.
Embrace unpopular decisions
Going against the herd demands courage but can yield substantial rewards. Prepare for critique and stay focused on your research and analysis. Embracing a contrarian mindset positions you as a nonconformist investor who stands out.
Kayal is an assistant professor in the finance area, Madras School of Economics. Maiti is an author and finance expert.
