Why a Contrarian Can Always Buy Low Sell High?
Contrarian
always do the opposite things from the public. Why can they do so? What
make them do so? And what is the result of it?
They
always have a clear mind that isolate themselves from the public. They
always want to observe the market and reacts against it. It takes a very
high risk to do so, especially when most of the people against his
decision made. Let me give you an example:
In Year
1999, Warren Buffett avoided the High Tech. Stock. He explained to the
public that he could not understand or how to value a high PE stock or
high Future PE stock. Everyone was excited of the millenium and the new
technology. When everyone looks good in one stock/sector, the
stock/sector may at the same time overvalued or enjoy very high risk of
collapsed.
I remembered a lesson learnt from a senior.
He always adviced us to invest in Low PE stock. But normally Low PE
stocks divided into two groups:
1. They deserved the
Low PE as they are in the low growth industry / sunset industry. If you
cannot liquidate the stock, then you may end up wasting your time for
waiting the stock's PE to turn to normal.
2. They are
hidden gem. Most probably they are also in the sunset industry / low
growth industry. But if you could spend more time analyzing it, and try
to figure out the competitive edge against other competitors, then you
may enjoy a higher than expected return.
I
also always remember that good stock always enjoyas high ROE. But later
in my investment journey, I realized that ROEG is more important than
ROE. Why? Becuase You must maintain or increase the ROE consistently,
for at least 5 years. It shows that the ROE that your company achieved
is not a temporary result that could be manipulated by the management.
Of course, management could create a fake result, such as Enron, Megan
etc.
I always remember the rule "Never Lose Your Money'.
First
of all, we should think that our money is not our money, but a
retirement fund that we will need it some years later. So, try to treat
it like that, and you would be able to stay calm even if you experienced
a short term volatility, because you already knew that the good stock
that you invest would enjoy a higher dividend as well as higher earnings
in future. You could sleep well everynight. :) Of course, this is all
about my opinion.
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