Most investment decisions are emotion-driven. You have heard
that fear and greed drive the market. There even is an index from CNN that
tracks Fear and Greed in the stock market.
In its article on contrarian investment Investopedia notes
these key points:
- Contrarian investing is a strategy of going
against prevailing market trends or sentiment.
- The idea is that markets are subject to herding
behavior augmented by fear and greed, making markets periodically over- and
- “Be fearful when others are greedy, and
greedy when others are fearful,” said Warren Buffett, a phrase that
encapsulates the contrarian philosophy.
- Being a contrarian can be rewarding, but it is
often a risky strategy that may take a long time to pay off.
I think of contrarian investing is having a strategy to replace emotion-driven investment decisions with ones derived from logic and analysis. What would you like your investment decisions to be based on? Fear and Greed, or Logic and Analysis?
Note on the Fear and Greed Index Graphic above that a month
ago, the Index had a Greed rating of 60. At that time, in mid-February 2020,
the major stock indexes were at a record high. Now, 30 days later, on March 13,
the stock indexes are down 25%, and the Index shows Extreme Fear. Investors
were happy to buy stocks at record high prices and are now afraid to buy shares
after a 25% decline. That is the opposite of buying low and sell high. Not a
lot of investors succeed with an emotion-driven buy high and sell low “strategy.”
When the stock market crashes, you will feel fear. Knowing
that you will have those feelings makes a little easier for you to weather out
the stock market decline and stick to your investment strategies.
I have lived through my share of stock bear markets,
starting with the 1987 crash. There have been at least eight fear-driven stock
market sell-offs in the last 25 years. After each, share prices recovered, and
market indexes climbed to set new record highs. I developed my Dividend Hunter,
income-stock focused strategy to give subscribers a plan that works through the
swings in the stock market. It’s easy to own stocks when the market is rising
and hard to look at your brokerage account when share prices are falling.
The Dividend Hunter approach focuses on building a stable to
growing income stream. That focus naturally leads to being able to buy low when
others are fearful. However, it is not a buy low, sell high system. I think of
it as a buy low and earn more strategy. For many investors, this is a new
concept and way to invest in the market. I provide step by step and stock by
stock guidance to help you put together your own stock market strategy that
works through the full stock market cycle.
The #1 stock to turn $25k into tens of thousands of dollars for life [sponsor]
I've identified a stock that will be your cash register for the next 30 years. But don't just buy shares to claim your income. Do this one thing with this one stock. Click here for the details.