Simply put, a contrarian is an investor who makes investments that are contrary to current market sentiment. For example, if energy stocks are currently all the rage and health care stocks are out of favor, the contrarian will purchase health care issues and avoid energy issues. The contrarian's thinking is that stocks which are out-of-favor today are underpriced and therefore represent excellent value. When a currently out-of-favor stock swings back into favor in the future and its price rises to reflect its true value, the contrarian will be poised to profit. While taking a contrarian position in the market can be profitable in the long run, many investors find it difficult to 'buck the trend' and adopt a contrarian market philosophy. Contrarian investors use fluctuations in market sentiment to create long-term profits. |
