Be a Contrarian, Not a Sheep

dave goes in the other direction of sheep investorsOne of the biggest tips that I could ever give to anyone that is learning how to trade and/or invest is: be a contrarian. Take action, don't just react. Analyze trends and try to get in on the bottom floor before the herd piles in, because by then, it will probably be too late to realize substantial gains.

A golden rule of investing is that when the herd gets in, you should be getting out. When the herd stampeded into Internet stocks in the late '90s, it was time to get out. Now that the herd is stampeding into resource stocks and oil stocks, it is probably a strong sign that the top is in for both of those sectors. When I hear people say that oil stocks are still a strong buy, even though the price of oil is hovering near $100 a barrel, I cringe. Sure, it may go higher, but the risk/reward profile is terrible. The real money has already been made in that sector, as the price of oil rose from $12 a barrel in the late 90's to almost $100 a barrel now.

If you want to make real money in the stock market, you need to spend time analyzing economic and company-specific trends, and be prepared to put your money where your mouth is when you feel that the situation is turning. Right near the real estate market sucks in the United States, and many companies are taking a pounding because of it. However, that market will eventually bottom, and there will be much more to be made as these companies recover. It is all about economic cycles, and you need to be bold enough to predict and capitalize on changes in the economic currents.

Becoming a contrarian requires a great deal of work to keep on top of economic and company-specific trends, however the payoffs make it well worth it. Are you a wolf or a sheep? Because in the end, sheep get slaughtered.

Filed under: Motivational | General Knowledge

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