Contrarian Investing

Every investor will have to agree with the motto “buy low, sell high”, but in reality investors often do the exact opposite. That creates opportunities for contrarian investors. Contrarian investing does not mean that contrarian investors are constantly pessimistic or optimistic, it just means that they act against the popular beliefs. Contrarian investors see value in a share when many investors panic and are cautious if the confidence of other investors is sky-high.
Many investors base their decisions on how they feel, rather than what they know (or could have known). Most investors balance between hope and fear. For this reason, markets often over exaggerate into optimism or pessimism. A contrarian investor is convinced that mass psychology leads to mispricing of assets, sectors or individual stocks and that he can use that in his advantage. I therefore maintain my own investment selection model and know how to let the issues of the day behind me.

Selection model
Finding the perfect stock to invest in, starts with finding the right sector. Contrarian investors take advantage of the mass psychology of other investors, but therefore a public opinion is necessary. I find the right sector to take a closer look at by following international news and macroeconomic developments. When something hits the 8 o’clock news, after all, everyone quickly has an opinion ready.
There are two kinds of interesting contrarian investments. I look for companies with existing products that are undervalued for some reason. Mostly the stock is undervalued because the risks are overestimated by the market. I also look for companies where I think the potential of their innovative products is not adequately reflected in the share price. The potential is underestimated by the market. In both cases, I think that the value of the shares is not yet reflected in the share price.
Very often the market overestimates the risks and undervalues ​​the potential. Run away from scary and new things you might say. I do not walk away and just see opportunities where others don’t.

A look at the fundamentals
After finding the right sector to invest in, we look for the best company based on the fundamentals. When an event has led me to a related sector, my team and I take all the hundreds, sometimes thousands of shares within the sector. We use a filter based on fundamental facts to make our first selection.
We look for stocks with considerable upside potential and companies that can withstand rough market sentiment. Investing, for me, is looking at the facts. Do not underestimate that it takes time to find those facts. To be a winner in the stock market, there have to be losers as well. Winning comes from hard work and hours and hours of research.

A closer look at the company
Using the fundamental basics we filter out the strongest shares and get to the next step of the selection process. I now start to take a closer look at the company. As we already filtered out only a handful of stocks, we can now zoom in on the companies.
Good investing means looking further than others. You will have to understand why this share is cheap, but on the other hand still healthy. What happened? Why is this low share? Did the cause for the decline disappear or is the company armed against it? It is also good to understand the causes of decline that have hit the share price. During our thorough fundamental analysis, we look for the story behind the numbers and we dive deeper into the companies.

Conclusion
With this column I want to give you a small insight in the way of contrarian investing. Being a contrarian mostly means following your own way of investing and making your own decisions, without taking into account what everybody else thinks. Fundamental analysis is the basis. I don’t care what other people say, I look at the facts and numbers myself…
My team consists of a young group of individual traders who bundle their experience and market wisdom to provide interesting content about the stock market for investors looking for a good deal. We distinguish ourselves from the mostly gray image around investing. For more information you can go to www.Marktgevoel.nl