Thursday, April 7, 2011

A Very Valuable Investing Strategy For The New Investor Or The Investor That Has Failed

Investors, like me, invest for one purpose only - TO MAKE MONEY! Arguably, some methods of investing are better than others. In the stock market, you have the Bulls (optimistic about stocks going up in value) and the Bears (pessimistic about stocks going up in value). Bulls are likely to buy stocks with the hope that the price per share will increase over time, while Bears are likely to short stocks (a method of making money when the price per share of a stock goes down). In real estate, the goal is to buy low and sell high...pretty simple concept, but timing is everything if you want to be successful. Not all investors make money. As a matter of fact, many investors lose everything, because their method of investing is not well thought out and has no track record of success. I'm writing this article to share my method of investing with those of you that want to better your odds when it comes to investing in real estate or the stock market.

I am a Contrarian investor in both the real estate market and the stock market. A Contrarian investor is an investor who attempts to profit from an investment in a way that differs from the majority. When everyone is buying and creating a "Top" in a market, a Contrarian will sell into the making of that market top before it collapses. When everyone is selling and creating a "Bottom" in a market, a Contrarian will buy at the bottom, knowing that the investment is undervalued. A successful Contrarian investor buys and sells at the extremes of the pendulum swing. This requires patience and a solid understanding of the psychology of markets, be it real estate or stocks. The knowledge behind crowd behavior psychology is one of the most useful tools a Contrarian can use to make big profits. Crowds tend to invest in investments that have a confirmed positive bias. By the time an investment is perceived as being a good bet by the masses, the valuation of that investment is typically quite high or what we call "Top heavy". In other words, the majority of the appreciation is already baked into the investment by the time the crowd thinks it's a good time to invest in it. It's because of this novice investing, many lose everything when the investment runs out of steam and begins to lose value in a relatively short period of time. Contrarian investors, like myself, avoid these investment traps and focus on very undervalued investments that the masses are ignoring. As the crowd begins to rotate out of their bad investments and look for other sectors that have more appreciation potential, the Contrarian investor is already well positioned to enjoy the appreciation ride the masses will now bring to their investment. When the investment appears to show signs of high valuation, Contrarians will sell their investments (stocks or real estate) to a willing crowd of buyers who have come too late to the game, only to be left holding the bag of a soon to be overvalued liability.

Look for investments that have good fundamentals but are undervalued due to unsustainable trends by the masses. If you do this, and you have patience, you will be setting yourself up for great profits as the cycle unwinds in your favor. Contrarian investing is at the root of my success as an investor. I've made money in both up and down markets by using this strategy. There are many books and in-depth articles on the subject of contrarian investing. Please consider this type of strategy if you want to improve your investing acumen.

Happy investing!