Tuesday, November 25, 2014

Be a contrarian

Morning ... I had an e-meeting with my group last night, analysing O&G counters which finding bottom at the moment.

Then, I do realise that I hv over-traded, over diversified and listening to too many noisy groups. Yes ... I need to re-focus into my own trades, in order to be a good trader, my goal for 2015.

So ... I am deciding to leave those groups(to protect my mindset) who are punting into those penny-cheap counters. I have to focus in my own trading system, and to trade consistently. And the only way I could do that ... is to focus in my own trades.



Next year ... my stock-watch will have free e-meeting every week. I want to explain my trades, and making sure many will follow their strict trading rules, rather than just punt-here-punt-there. At times, we might be influenced and swayed ... but we need to recognise that and pull ourselves back to our own path. The road to success is always winding ...

Being a contrarian is always very challenging and difficult. It is doing something others wont do, wont think of doing ... and will even try to stop us from doing. Being contrarian will certainly drawing criticism from the majority ... afterall, that is why they are seen as the outliers.

So ... I want to be contrarian ... focusing on being that next year on.



5 Rules Of Contrarian Investing

Contrarian investing has a reputation for being a successful tack. The flip side of this is that running with the herd has a poor track record.

Trend following is running with the herd and it has had good press over the last few years because the trend is your friend, at least until the bend in the end. Trend following works because the trend followers look good for a long time while the trend persists. When the trend ends they can blame bad luck for their resultant failure.

Conversely, the contrarian looks like an idiot most of the time and when they clean up to the dismay of the herd when the trend reverses, they can be dismissed as lucky. Human nature being what it is, contrarian investing is hard for both professional and private investors alike. This is why it is lucrative. The market pays people to fill niches that balance the odds.

Here are the five golden rules of contrarian investing:

1. When you read about it in the newspapers or see it on the news, it is already all over

This is a hard thing to write as a journalist but sadly it takes so long for news to hit the mainstream it is useless beyond entertainment. In a world where market news moves prices in sub-seconds, tomorrow’s front page or tonight’s newsflash or even this evening’s Internet news is too late to help or save the trader. The market has repriced before it gets past the specialist wires.

So you can forget following the main stream media news or worrying about what it has to say, the price has already embraced that. It’s Donald Rumsfeld’s “unknown unknowns” that you have to try and grasp and doing so will make you look foolish to most people.

2. Buy when everyone wants to sell and sell when everyone wants to buy

To buy cheap and sell dear you have to be in fundamental disagreement with most of the other players in the market. You will be passing your stock baby onto some putz at the top of the market and liberating some cheap gem at the bottom of the market from some hapless loser. The people you buy and sell to don’t share your investment strategy and at that moment, whether it’s the top or bottom of the market, the game is full of fools. The thing is, they think you are the dunce or why else would they deal.

3. No one sees a bubble when their income depends on it 

Time and again, the market ignores bubbles because no one can afford for them to burst. To be truly contrarian you could say, no one stands up for the truth when their daily bread comes from an edifice of lies. The fundamental underlying market theories are very rarely expounded, because they are in contradiction to financial industry profits. Skepticism is often mistaken for cynicism but to be a contrarian it pays to be both. You don’t have to act like a bitter, angry old man railing “tin hat” predictions; you can still long a bubble. But your model needs to remain contrarian and at its core that means not falling for the hype of the herd.

4. Don’t take tips or advice and don’t believe research notes

Opinions are like belly buttons, everyone has one. Focus on your own research to have your own opinion. The market doesn't pay people to agree with each other or regurgitate someone else’s ideas. It will pay you to be right when not enough people see the real picture. If everyone is on the same page, the price is right.

5. What is obvious to you is not obvious to others 

The world simply does not catch on fast to hidden variables. If you have a contrarian point of view you are sure is right, don’t expect the world to hear angelic choirs and for there to be a sudden catharsis. If you are right, the predicted outcome will take a lot longer to happen than you think.

Allow a very long time indeed. Then when it starts to happen, it doesn't matter if it’s a good or bad thing, nothing will be said. It will be as if nothing has changed. There will be silence as the share rockets or the market tumbles. This silent pivot tells the contrarian that his thesis is in good shape.

The herd never notices. Then, of course, when it is all over you will read about it in the headlines. By the time you read all about it in the papers and everyone is shouting it from the rooftops, the contrarian will be looking to reverse and the cycle will begin again.

So ... i will remind myself to be who I am ... a contrarian and will decline to be influenced. in the end of the day, contrarian will prevail. majority of the herd will perish ... when markets collapse ... one day.





Time to get back into work ... and working on my idea. Yes, I will attend more market talks and will do my own analysis. I will want to maintain a winning-mindset group of traders and majority of them are in winning side. Maintain that. Consistency is what we looking for.

TEH

No comments: