It seems like every investor (amateur or professional) bills themselves as a contrarian. They will tell you that they tend to buy unloved or unwanted companies when they are trading for a great bargain. The simple fact is that this is very hard. The Motley Fool has a great article on this very topic. Here is a key excerpt:
One of the biggest ironies in investing is that while almost everyone thinks they are a contrarian, almost no one actually is. I remember 2007, right before the market peaked. Just about everybody I knew thought they were a value investor, zigging where others zagged. But at investing conferences, you found out that all these guys were basically buying the same stocks. What people thought was a contrarian view was actually rampant groupthink. It felt great when you, the “contrarian,” had your views confirmed by another “contrarian.” But contrarianism isn’t supposed to feel good, and you’re not supposed to have it confirmed by others. That’s why so few can actually do it. It’s rare — not impossible, but rare — that someone can remain blissfully content when everyone else around them thinks they’re crazy. One of the nastiest tricks our minds play is convincing nearly all of us that we can be that person.
I highlighted the most important part. Being a contrarian goes against almost every fiber of who we are. The research data shows that most investors are the opposite of contrarians…they follow the herd. In my opinion, there are a few ways you can fight this urge:
- Rebalance without thinking too much– if you have targets for your portfolio, you should periodically be rebalancing to bring things back in alignment. Don’t overthink this… do it. It will be hard. Right now, you would be selling US stocks and buying bonds and emerging market stocks. They are completely unloved, but I thought you wanted to be a contrarian?
- Automate things– if there is a way to automate this process, even better. Then your mind can’t get in the way. Things like bi-weekly contributions to a 401k into a group of funds (some of which will most likely be things you don’t like to invest in) or auto rebalancing a portfolio is a great way to do this.
- Be diversified– one thing that can go wrong if you are a contrarian is bankruptcy if you are buying individual security (higher risk when you are buying companies in distress). Keep your investments broadly diversified and avoid buying individual stocks. It makes it a whole lot easier to be a contrarian when you know the permanent loss of your money is off the table.
