The principles of Contrarian Investing hold that when the vast majority of people agree on anything, they are generally wrong.

Otherwise no market would function because there is simply no minority with money enough to make a majority rich.

A true contrarian, therefore, will first try to determine what the majority are doing and then will act in the opposite direction.

I think the difficulty is the timing. Some measures you might attempt to use are various investor sentiment indicators . Last I checked Barron's carried some "investor sentiment" indexes. It is commonly said that investor sentiment is at a minimum when the market turns around. Some people try to trade on this. Some people have written books on it. I read one in my early 20's. Unfortunately, my books are packed for my move right now so I don't have the title handy. The idea is that when investor sentiment is at its lowest you should be buying because everyone else is selling or out of the market.

The reason behind that though - not mentioned in the book - is that investor sentiment pretty much drops as a market drops and rises when it rises (the true picture is bumpier). Once the market rises and with the advantage of hindsight you'll find sentiment was near a low point somewhere near the actual low. Here's the problem. Just because you know that investor sentiment is at a low does not mean you know it is at its lowest. In a severe bear market you might keep finding investor sentiment at new lows and end up buying all the way down. Years ago, I bought a historical database of stock prices and tried all kinds of trading rules to try to generate automated programming rules. One of the things I found interesting was that there were some rules which won out the majority of times but you would have been killed trading strictly on it because there was that one really bad streak out there. This would be the thing to watch our for. Sentiment continually dropping during a long bear market.

Colin...There is no single strategy that will work consistantly. You need to shorten the sight to have any success. in a short sighted multi-strategic system you can experience fine gains and losses. other than that, what you said was right on the button. The financial markets exist on a larger timeline.. low is not the lowest, there is always a buying opportunity no matter how steady the decline. It is such faith in such markets that allows for the expansion and collapse of financial markets to not linger too low or too high. They are self corrective.

Grimm, I agree :-)

I am converting all equities into interest bearing securities, very short term securities, I should add,
as I expect long term rates to rise and provide better buying opportunity and higher returns.

I have been studying and trading the financial and commodity markets for 20 years now.

I do not use sentiment indicators for the exact reasons mentioned.

However, at times, markets can be very orderly and predictible. It is all probability, of course, as there is no "unified theory".

When things line up properly, I find predicting the future course of a market easier than profiting from that prediction.

It is the difference between perception and execution.

I've been practicing that methodology for a loooooonnggg time now. Whenever the majoroty is saving and investing, I'm spending and wasting....

Hasn't worked to my advantage much :blink: