What happens if you go against the majority?

Most of the people who want to invest in assets get sucked into the idea of doing what everyone else seems to be doing. Oh, a company is in the news? Let’s invest into it. Oh, this company is being talked about on social media? Let’s get into it.

But most of the time, going with what everyone else is doing makes people lose money. To put it crudely, most people don’t know what they are doing and everyone is following one another. Maybe due to their own lack of time to put in the work, or just simple old FOMO. And it makes sense otherwise too, if everyone is trying to make money by doing activity A, there is less and less profit potential for people who get in later.

Let’s talk about an investing style that is based on doing what the majority is not doing: contrarian investing. These investors buy when others are selling and sell when others are buying. And you might want to pay attention, because a guy by the name of Warren Buffett is said to be one among the contrarians. And he seems to have done quite well for himself.

One theory behind contrarian investing is that when most people are saying that the market should keep rising, it is when these people are fully invested and therefore have exhausted their buying power. This gives rise to the thesis that the market might peak very soon. And that’s when they can gain money from short selling. If not, they can simply wait to buy when prices are more reasonable.

This works particularly well when markets are in turmoil. Buying assets when they are oversold and beaten down, means you gain so much additional returns when they do go back to their correct values. People who bought stocks during the March 2020 crash can vouch for this.

Another very good example of contrarian thinking is shown in the movie The Big Short. In the 2000s, the real estate market was booming in the USA and most of the investors were long. But Dr Michael Burry and some other fund managers found out that the underlying fundamentals showed a different story, and they profited in the billions in between them by betting against the market.

So, thinking the opposite of the herd can lead to major profits, but what can be the problems you fave when doing this? You need to spend a good amount of time finding good deals for yourself. And you also have to be able to gauge how the market is thinking. You can read about a tool that helps with that here. And even if you do take care of both of the above points, you still might have to wait for some time for your positions to show big profits, because the thinking is on the other end of the spectrum when you’ve invested, and the tide needs some time to get turned.

Well, happy investing. And while that’s it for this article, you read more of my articles here. And do let me know if you want a specific topic covered. Subscribe for free to receive more posts like this every day!