Contrarian Strategy

Contrarian Strategy

Investors frequently find themselves at the intersection of conventional wisdom and unusual success in the constantly changing financial markets. One strategy that has stood the test of time and confounded traditional approaches is the Contrarian Strategy. A good alternative for investors trying to understand the intricate workings of financial markets is the contrarian method. Contrarian investors can uncover hidden gems and succeed in the markets by challenging the status quo and embracing opportunities diverging from popular sentiment. While not without its challenges, the contrarian approach has proven its mettle in the portfolios of some of the most successful investors in history. 

Who is a Contrarian? 

Contrarianism is a mindset that deviates from the consensus and challenges prevailing market sentiment. Contrarians are individuals who go against the crowd, questioning popular beliefs and making decisions that differ from the majority. This contrarian approach can be particularly powerful in the realm of investing, where emotional reactions and herd mentality often drive market movements. 

Contrarianism extends beyond mere dissent; it is a deliberate strategy aimed at capitalising on the emotional reactions and herd mentality that often drive market fluctuations. By analysing market sentiment and identifying instances where assets are mispriced due to collective overreactions, contrarians position themselves to exploit potential market inefficiencies. This strategy requires a keen understanding of market dynamics, a willingness to challenge popular narratives, and the patience to wait for the market to recognise the underlying value of contrarian positions. 

Understanding Contrarian Strategy 

Understanding the Contrarian Strategy is akin to navigating financial markets with a contrarian compass, guiding investors away from the conventional currents of popular sentiment. This strategic approach involves a deliberate departure from mainstream investment norms. Contrarian investors actively seek opportunities where market consensus diverges, capitalising on the mispricing of assets resulting from emotional reactions and prevailing herd mentalities. 

The crux of the Contrarian Strategy lies in recognising that markets often overreact to news, events, or prevailing trends, leading to temporary misalignments between an asset’s intrinsic value and its market price. By identifying such discrepancies, contrarians position themselves to benefit from the eventual correction as markets sober up to the true worth of an investment. 

Understanding the Contrarian Strategy becomes a valuable tool for investors navigating the dynamic global markets. It demands a keen eye for market sentiment, a contrarian mindset willing to question consensus, and the ability to patiently weather periods of divergence before the market aligns with the contrarian’s perspective. 

Breaking down the Contrarian Strategy 

Contrarian strategy encompasses several key principles: 

Opposing the Crowd Mentality: At its core, the Contrarian Strategy involves going against the prevailing sentiments of the majority. Instead of succumbing to the influence of popular market trends, contrarians actively seek opportunities where the consensus view may be flawed. 

Analysing Market Overreactions: Contrarians scrutinise instances where markets exhibit irrational exuberance or unwarranted pessimism. By identifying these overreactions, they position themselves to exploit potential mispricing in assets, anticipating a correction in the market sentiment. 

Value Identification: Unlike traditional approaches, contrarians prioritise the identification of undervalued assets over conforming to popular investment choices. This entails a meticulous analysis of fundamental factors, such as earnings, dividends, and book values, to gauge the intrinsic worth of an investment. 


Working of Contrarian Strategy 

Contrarian investors actively look for assets that are out of favour or unpopular. They use various indicators, such as: 

Market Sentiment Analysis: Contrarian strategy begins with a meticulous analysis of market sentiment. By scrutinising prevailing opinions and emotions within the market, investors identify instances where the consensus deviates significantly from the intrinsic value of an asset. 

Identifying Overreactions: Contrarians focus on situations where the market reacts excessively to positive or negative news, leading to mispricing. This approach involves recognising when investors become overly optimistic or pessimistic, creating opportunities for contrarians to take a position counter to the prevailing sentiment. 

Risk Management: An effective risk management plan is essential to contrarian thinking. Investors reduce risk by diversifying their portfolios and adhering to a strict position-sizing strategy because they understand that not all contrarian wagers will be profitable. 

When the majority is excessively bullish or bearish, contrarians take the opposite stance, anticipating a reversal. By embracing the discomfort of swimming against the tide, contrarians position themselves to benefit from the eventual market correction. This approach relies on the idea that, eventually, the market would realize an asset’s true value, providing contrarian investors with advantageous returns. By adopting a contrarian strategy, investors can potentially exploit market misjudgments and emerge successful in a landscape where adaptability and astuteness are crucial. 

Examples of Contrarian Investors 

Several notable contrarian investors have successfully employed this strategy: 

Warren Buffett: While renowned as a value investor, Buffett’s contrarian moves during market downturns, such as the 2008 financial crisis, showcase his ability to go against prevailing sentiments. 

John Templeton: Famous for his contrarian approach, Templeton bought stocks in the midst of World War II when others were fearful, reaping substantial profits later. 

George Soros: Well-known for his contrarian “reflexivity” hypothesis, he makes money by taking advantage of market mispricing caused by the feedback loop between prices and market players.  

Frequently Asked Questions

Contrarian investing involves going against prevailing market sentiment, while value investing focuses on identifying undervalued assets based on fundamental analysis. Contrarians may invest in assets that are unpopular, regardless of intrinsic value, while value investors seek assets with intrinsic value that the market has overlooked. 

Going against the grain and making investments in assets that are out of style or unpopular is known as Contrarian Investing. Contrarians believe that markets overreact to news and events, leading to mispriced assets that can be exploited for profit. 

Notable contrarian investors include Warren Buffett, John Templeton, and George Soros. These individuals have successfully applied contrarian principles to achieve remarkable investment success. 

Billionaire contrarians have often employed deep value strategies, identifying fundamentally sound but temporarily undervalued assets. By patiently waiting for market sentiment to shift, these investors capitalise on the correction, beating the market in the long run. 

Contrarian investing is not foolproof and comes with its limitations. It requires a high level of patience, as markets may take time to recognise the true value of contrarian positions. Additionally, there is a risk of misjudging market sentiment, leading to potential losses. 



    Read the Latest Market Journal

    Back in Business: The Return of IPOs & Top Traded Counters in March 2024

    Published on Apr 17, 2024 404 

    Start trading on POEMS! Open a free account here! At a glance: Major indices continue...

    Weekly Updates 15/4/24 – 19/4/24

    Published on Apr 15, 2024 67 

    This weekly update is designed to help you stay informed and relate economic and company...

    From $50 to $100: Unveiling the Impact of Inflation

    Published on Apr 12, 2024 150 

    In recent years, inflation has become a hot topic, evoking strong emotions as the cost...

    Japan’s Economic Resurgence: Unveiling the Tailwinds Behind Nikkei 225’s Record Leap

    Published on Apr 11, 2024 84 

    Source: eSignal, Intercontinental Exchange, Inc. In the heart of Japan’s economic landscape, the Nikkei 225...

    Weekly Updates 8/4/24 – 12/4/24

    Published on Apr 8, 2024 109 

      This weekly update is designed to help you stay informed and relate economic and...

    What Makes Forex Trading Attractive?

    Published on Apr 2, 2024 191 

    In a world where the click of a button can send goods across oceans and...

    Weekly Updates 1/4/24 – 5/4/24

    Published on Apr 1, 2024 98 

    This weekly update is designed to help you stay informed and relate economic and company...

    How to soar higher with Positive Carry!

    Published on Mar 28, 2024 137 

    As US Fed interest rates are predicted to rise 6 times this year, it’s best...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066