CONTRARIAN Investment Style and Its Benefits

08 September 2018

CONTRARIAN Investment Style and Its Benefits

Greetings from Hitesh! Yesterday we dealt with the investment and trading style of seasoned investors. It is the best method but very few can reach to that level. So, today are taking up other method – CONTRATIAN.

Buffett has often said “The less prudence with which others conduct their business, the greater prudence with which we should conduct our own business”.

He talks about CONTRARIAN approach. What it says is – buy when others sell and sell when others buy.

This looks simple in reading and in theory but most difficult in practice. The biggest risk is timing of you action. You have spotted NIFTY or XYZ company and you have started going CONTRA against the market. All your calculation says that you are RIGHT but that does not mean market will agree with you immediately.  

That’s why Keynes had said “Market can remain irrational longer than you remain Solvent”.

In 1999, Rakesh was going short in K-10 stocks one side. At that time BADLA system was there and he was selling every week at high prices. At one point he was down in losses like anything. He had problem in paying up the margin. Luckily for him, market crashed in Feb.,2000 and he made Rs.4000 Crs from his bet.

It looks good when you read the profit amount, but it requires immense gut, calculations and staying capacity to play against the market.

All great guys always play CONTRA and that is the reason for their success. In GITA, LORD KRISHNA had also said about great people -

ya nisha sarva-bhutanam

tasyam jagrati samyami

yasyam jagrati bhutani

sa nisha pasyato muneh

Meaning of above slok is - What is night for all beings is the time of awakening for the self-controlled; and the time of awakening for all beings is night for the introspective sage.

Imran Khan when he was CRICKETER – his T-SHIRT was having this line – “Big Guys Play at Night.”

In short, do the reverse of masses.

Things to remember when you go CONTRA: -

Market is affected by N number of factors at any given time. So, contra approach can’t be said to be fool proof.

1.  Contra isn’t an approach that will make you money all the time. Must of the time market is normal and there is nothing to bet against market.

2.  Even if EXCESS is there in any side – it is important to remember that “OVERPRICED” is incredibly different from ‘GOING DOWN TOMORROW’ and “UNDERPRICED” is incredibly different from “GOING UP TOMORROW”.

3.  It is painful when trend is going against you for longer time as shared with RAKESH example above.

4.  Just going against the crowd should not be the goal, it should be backed up by solid calculation of fair value and staying capacity.

What is my personal understanding of CONTRA?

Let us face the reality, you can’t make money without support of trend in the market. For me Contra is nothing but the ability to see the trend change ahead of the market people. The guys who play CONTRA – they know that PENDULAM is going to change from one direction to other and they can time the same with their VISION, GUT and INTELLECT.

Since there is a GAP between the early seeing the TREND and actual change of the TREND – they call it CONTRA. The way we have a GAP between BIRTH of a CHILD and DEATH of his old body, we see these two events separately. BIRTH is a beginning of DEATH and DEATH is a beginning of NEW BIRTH. Its all about CYCLE as we have seen in the beginning of our educational series.

What NEXT?

History shows that all great wealth has come by doing something opposite of what others are doing. Going against the trend is very difficult for the most guys and you should only try considering above factors.

Wish you all a HAPPY WEEKEND.

Follow me on Twitter @hiteshmparikh or on WhatsApp – +91-9869425399.

Live With Passion…Invest With Passion. 

Hitesh Parikh.