Definition
Contrarian Investing
Contrarian investing means going against the crowd, buying what others are fearfully selling and selling what others are greedily buying.
Contrarians believe markets overreact, pushing prices too low in panic and too high in euphoria. They buy beaten-down, unloved stocks or sectors when sentiment is darkest, expecting eventual mean reversion as the crowd's mood shifts.
The style overlaps with value investing but is more sentiment-driven. It requires conviction and patience to hold through continued pessimism. The danger is buying into genuine decline ('catching a falling knife'), so contrarians pair it with solid fundamental analysis.
Related terms
- Margin of SafetyMargin of safety is the practice of buying a stock at a meaningful discount to its estimated intrinsic value to protect against errors and bad luck.
- Value InvestingValue investing is a style of buying stocks that trade below their intrinsic worth, betting the market will eventually recognise their true value.
- Momentum InvestingMomentum investing buys stocks that have been rising strongly, on the premise that recent winners tend to keep winning in the near term.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.