What is contrarian investing, and how does it work?

What is contrarian investing, and how does it work?

  1. Contrarian investing is a strategy where investors go against the prevailing market sentiment.
  2. Instead of following the crowd, contrarians buy when most people are fearful and sell when others are overly optimistic.
  3. Market sentiment often moves in cycles—starting from optimism and excitement, peaking at euphoria, and then declining through fear and panic until it reaches despondency.
  4. Contrarian investors look for opportunities at these extremes, buying undervalued stocks when fear is at its peak and selling when excessive optimism drives prices too high.

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