Contrary Investing is based on the assumption of human perceptions, and the actions taken from these either right or wrong perceptions which will influence the stock prices. A contrary investor studies the crowd behavior and profit from his or understanding of the market’s psychology.

Humphrey Bancroft Neill wrote the classic book, The Art of Contrary Thinking where he concluded that there are certain “laws” of psychology.

1. Crowds yield to irrational motives which individuals are more likely to suppress.

2. People instinctively follow the impulses of the group or “herd.”

3. Contagion and imitation in groups make people more vulnerable to suggestion and emotional propaganda.

4. Crowds act on emotion rather than reason, easily accepting assertions without evidence.

These assumptions prompted Neill to suggest that “When everyone thinks alike, everyone is likely to be wrong.”

The behavior of the crowd will always be driven by fear, greed and hope. These emotions stimulated by the crowd are transformed into an urge to take actions which will then transfer into the markets as price movements.

A contrarian investor will buy on weakness and selling into strength. Contrarians are often investors who seek undervalued, neglected and out of favor companies in unexciting industries before the crowd discover them.

Contrary investors also take advantage of the repetitive pattern by their non-conformist thinking always using skepticism and doubt to question present assumptions and anticipate future changes.

Contrary thinking is more than thinking beyond emotional behavior, it is having the courage to exploit it before everyone does. Your control over your actions is bonded by discipline and confidence.

“Eccentricity is not, as dull people would have us believe, a form of madness. It is often a kind of innocent pride, and the man of genius and the aristocrat are frequently regarded as eccentrics because genius and aristocrat are entirely unafraid of and uninfluenced by the opinions and vagaries of the crowd” - Edith Sitwell

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