Contrarians are the naysayers of the investing world, always questioning conventional wisdom. Contrarians buy investments that are out of favor with other investors or with the market in general, and conversely avoid investments that are currently popular.
While this approach sounds out of step, there is method to the contrarian’s madness: The contrarian’s philosophy is that stock that is currently undervalued by the market may be poised for a rebound.
For this approach to work, you have to be willing to hold on even if things get worse before they get better, or if a stock takes a long time to make a comeback. Because it’s riskier than other types of investing styles, and because it takes experience and thorough research to identify undervalued companies, most experts advise applying a contrarian style to only a small portion of your portfolio.
