Contra investing is an approach of investing where one takes investment calls contrary to the current trend. For example, when the rupee was appreciating stocks of information technology (IT) companies were not favoured by investors. A contra investor would buy IT stocks at such point in time.
Right Stock at Right Price for Right Time
Have you ever invested in a stock on someone's advice to make profit and then has to wait for months, maybe years, to recover capital? Not anymore.
Contra investing is an approach of investing where one takes investment calls contrary to the current trend. For example, when the rupee was appreciating stocks of information technology (IT) companies were not favoured by investors. A contra investor would buy IT stocks at such point in time. The benefit here would have been that when the rupee depreciates, the stock’s flavour will come back.
One could say that banks and financial services is a good sector for contra investing. With inflation on the rise and carrying with it the interest rate, nothing seems right for the banks. There is no much credit off take, deposit rate will have to be raised and the margins will get squeezed among other things. With interest rate and inflation which are currently standing at record high levels, one can visualize them to stabilize after a certain period of time. After this, the banking sector would then benefit. Banking, being an essential part of the economy and having an established business model, probably provides a great chance for contra investing.
People who do not want to invest in bank stocks; they can invest in ICICI Prudential Bank and Financial Service Fund. Also, there are some existing funds from others like Reliance, UTI, Sundaram and JM. Apart from allocating your funds in the above mentioned sector, you can also look at investing in a few contra schemes like SBI Magnum sector Umbrella – Contra and Kotak Contra.
I would now conclude this article by saying that contra investing is not an easy task. It needs careful consideration and understanding of the concerned sectors. It need substantial amount of knowledge and research in various sectors.
One should understand that the very basis for a stock market to function is because of various diverse views that exist within people. One person may have sleepless nights with regard to his portfolio. However, there can also be another person who feels that the market is good. Thus, there are two types of people looking at the same market. One of them things that the prices will go down and another type of person thinks that the prices will rise. Both types of views exist in the market. The question is how one decide the right time to buy?
There are people who have lost money and will swear not to invest again or will wait till the market finds the bottom. But one should understand that in a bear market, finding and knowing the bottom is an art in itself. You may continue to get negative news one after the other. Such a situation can make it difficult for you to rightly predict the markets direction. Also, there can be a situation when just the market gets into a positive mode but suddenly you see the inflation number in front of you.
In my opinion, it’s high time to do some Contra investing. The principle of buying low and selling high works well in conjunction with a philosophy of Contra investing. In a Contra investing concept, you invest against the present views of the market. However, a good deal of courage and conviction is required for taking Contra investing.