The theory of the contrary view

Some of the greatest speculators have argued that the best method to earn money on the stock market is to keep the skepticism about herd behavior. This theory of the contrary view focuses the investment strategy in time series.If people are buying like crazy the moment to sell it will be near. In contrast, if people are selling desperately the moment to buy will be near.

This argument is simple but brilliant. The market follows cycles that are formed by the herd and its irrational decisions. When the price is low and the supply scarce the speculator appears hoping to make good profit in the future. On the other hand, when the price increases and goes high over its real value, he sells his shares and looks for other opportunities. The only problem that this strategy involves is the risk of playing alone with your own rules, but in general the speculator thinks in long terms.

I tend to think that every thoughtful investor should know the real value of his investment or the money that they believe it is worth and what they are willing to pay. However, as this is, it is much more important know when you must sell, where the limits are.

The riskiest trades involve independent behavior and decisions based on your own assessments of complex situations. For that reason, few people are prepared to apply this theory. In fact, most people are reluctant to take risks because they believe that they are unnecessary. Instead they prefer to follow the flow. The speculator assumes that the risk of loss is inherent to the investment that he makes, the future is uncertain and the possibility of a great reward depends on assumptions of risk.

  1 comment for “The theory of the contrary view

  1. Gonzalo Toca
    12/03/2009 at 19:13

    But what can we do if the market is like a brutal stampede where each “sheep” is running in different directions at the same time? Because this is occurring right know.

    And…. how will we be able to distinguish between a plain group of sheeps and a true herd?

    I really don´t know…

    See you!


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