CONTRA INVESTING

Have you ever swimmed in a river or Sea facing, against the water flow ?  Not studied like all, and being successful in that field ? Not like everyone doing a job or business, choosing some different field and made a success ? If yes for all those, then for you “ CONTRA INVESTMENT ” may be best suited.     

WHAT IS CONTRA INVESTMENT METHOD ?  

Anyone, acting opposite to majority of the people’s  thinking and gaining through those actions. For example, when everyone telling to buy, we sell, when everyone selling, we buy includes in this method. Similarly while everyone selling a stock / sector the specified stocks value will be seemed very low. At that moment buying the stocks with smaller quantity, considerable growth can be obtained in future.    

HEAD WEIGHT AND FEAR ! 

The two important feelings controlling the stock market are Head weight and Fear. While stock market rises someone’s head weight rises. While head weight rising we chase and buy the stocks . This type may be gain for short term investors, but not for Long term investors. For some reason the entire stock Exchange, may have gone down or a sector may have gone down. Or else a specific stock alone may have gone down. Those situations will be cautiously utilized by Contra investors.   

Some big investors, keep an eye upon a sector or stock and may sell all the stocks entirely. A part of stocks value is decided by Supply and Demand. While the supply increases, and the demand decreases, the value of stock reduces. If happening continuously at a certain stage nobody would be seen for a particular stock or sector. During those moments, our God father , L.I.C, or some big Bulls like Warren Bufett take good of that Opportunity and purchase at Bulk Quantity.  

When equity markets are on the move, investors are quite happy to join the bandwagon. In fact, in boom times, we seldom discuss the strategy being used by our fund manager because all that matters is that he is giving great returns. It's only in a downturn that reality checks are done and one looks at strategies to minimize the pain. 

One such strategy is a 'contrarian' investing. As the name suggests, one would expect the fund manager have a completely different strategy to the existing market conditions. 

This basic idea is to protect the downside when markets are falling. But the reverse is also true. Returns in an upside might be lower.   

Understanding the term 'contrarian' is important because it can be defined in different ways. In most cases, contra investing involves selection of stocks that are not popular at the moment but has the potential to deliver over time because of factors like strong fundamentals, future turnaround in the cycle and so on.

For contra investing, there are couple of strategies that are used. The first one involves direct investment in stocks, whereby a particular theme is identified. The stocks are bought, in accordance with the theme and held for a particular time period. The simpler option is to select a contra fund that is offered by mutual funds. 

SO WHAT IS THE BASIC TENET OF CONTRA INVESTING ?

Uncertainties emerge in global events, economic growth, government policy etc. All such events converging today, creating huge opportunity for generating future returns. Thus current environment is apt for contrarian investment.

The reasons why a Contra strategy is apt at the current point of time are Most funds / investors are betting on the safest stocks. Top holdings of mutual funds are all among the top 10 market capitalized companies in India and constitute over 30% of total equity holdings .When these stock don’t move, several MFs don’t perform in the short run and this kind of Risk Aversion prevents more creative stock selection.

THE POSITIVES OF CONTRA INVESTMENT !

Like all people, like a massive goat shrub, traveling in one direction, we travel in opposite direction to purchase the stocks in a cheaper value. Since already gone down stocks further more decline is impossible. While the massive goat shrub taking a U turn a huge gain can be expected. After gaining we can leave the shrub, and for persons , developing the wealth, can be said as a Wonderful situation.  

HOW ARE SUCH STOCKS IDENTIFIED?

There’re no short-cuts involved here. It requires a lot of research and out of the box thinking. Accumulating information about prospects of the sector to which the stock belongs, its management, etc. are key to successful investing. Doing a comparison of PE ratios between stocks of different companies in the same sector as well as checking the balance sheets and annual reports are some ways to identify non-popular and good stocks.

THE NEGATIVES OF CONTRA INVESTMENT !

While all are walking in one direction , we changing our direction in opposite direction with 
no partnership, in the midst of the forest lonely with Fear mixed feeling possible. It may 
check the Individuals Patience. If a new comer while purchasing after entering , it may 
continuously go down. While the entire stock market rising, our portfolio alone remain 
standstill. So excessive patience persons can alone bravely handle this type of investment.  

DISADVANTAGES ! 

Factors to Investing in equities Health. The first law may take more scientific knowledge’s 
you. Each time you collect from pharmaceutical or medical supplies, will be the impact of a deep understanding of the factors underlying medical. Consider whether thiIt works as a 
valid reason to prevent them from doing so.

The last second reason is to avoid investing in shares is to have health permits market watch events near the most important steps as the FDA. I advise people to take seriously this time, it could to lead to a net decrease of the share price if a major event such as a FDA decision is contrary to the company, whether it is yet determined.

So this is. We have seen and assessed the advantages and disadvantages of investing in shares of health care. It is not truly universal, not all, but it is certainly a lot of work for many people. You must occur on more thinking in order to make your personal decision for or against. You can order a optimal decision based on information provided in this article.

HOW TO MANAGE THE UN-COMFORT ABILITY ? 

Any new methodology will be hard at the start. With patience, after investing one or two times, earning more gain may gain self confidence, automatically. Any stock suitable for investing , due to some reason the price lowers. You desire to buy that stock. 

A small quantity of stock can be purchased initially. Afterwards the stock may be dancing in sideways like a see-saw. In another incident a small downfall may happen. 

At that moment, a second small can be purchased. Like this two / three opportunities may knock your door. You have to utilize the situation favorably. In these methods the average price of the stock will definitely be larger than the finally purchased price. Don’t worry. 

Any stock the limit of High / Low cannot be defined even by the concerned company promoter itself. So, you and the promoter both are traveling in the same Boat, need not be forgotten.      

CAUTIOUS MOMENTS ! 

Stock prices after you purchased, lowered average value upto the bottom and making U turn we must be careful. Having claimed moderate gain, immediately sold, getting at not be executed. After good handsome profits we can quit. If you were a Long term investor, like your own house you can hold it for years lifetime. If a new comer then within Sensex and Nifty the stocks can be choosed. 

RISK ! 

Like in any investment method, this method also contains risk. The stock you ought to buy going on lowering and at a stage may disappear from the stock market. Like India, the growing Economy, for large companies nil possibilities are found, we must act cautiously. To safeguard from these problems any stocks weightage can be maintained not more than 5 %. Moreover, not waiting until the least bottom we can enter . Sometimes Contra Investor may loose the entire gains also like the Investment stocks during the Boom at about 2000. Now they were almost papers. 

TOOLS USED BY CONTRA INVESTORS !

Like value investors, they also select stocks of Low P.E., Low book value, further more seeing market sentiment ( While all purchasing, they sell, while others selling, they act Opposite ) they invest. To the Utmost to calculate the Ups and Downs fluctuation of the Market vicks Index ( India VIX – India Volatility Index ) will be seen , and used for Investment. Since the VIX Index, denotes the Ups and Downs of the market suddenly or rapidly rise / low the index value rises. To buy / sell they can use the Index Favorably.   

For Example :- 
By the end of year 2008, the VIX Index had gone to 85. It is a favorable period to buy stocks. Only considering vix , alone investment cannot be decided. It can also be used as a tool.