I have said this numerous times but I am a contrarian investor. I have explained both what that means and why I invest that way. For the most part it works. It might not work short term but over the long term it is the way to go. When you spot a top it takes time for the stock to top and the same goes for the bottom. You might take a slight loss getting into the position but when the stock turns you will receive a net gain.
Part of being contrarian is even going against what smart people think. Actually, MOST of being a contrarian is going against what smart people think. Smart people don’t want to be wrong so they aren’t as willing to take risks with their picks. If you pride yourself on being smart and you pick something that turns out to be bad then you are no longer considered smart. In the book Irrational Exuberance the author talks about this. How most people aren’t willing to give you an opinion on the market out of fear of being wrong. When they do provide an opinion it is usually in retrospect, similar to how people can spot the flaws in the RE bubble now but not while they were in the thick of it.
Analysts play it safe and they follow the herd right into the slaughter house. Analysts told you to continue to buy buy buy during the RE bubble. Analysts told you to sell at the bottom of the market. Analysts know nothing. The problem with this line of thinking is they tend to play what they think is safe by following the herd and doing what everyone else is doing. The problem is you don’t get rich playing it safe and everyone can’t be above average so why would you follow them? Follow the herd might be comfortable but you wont get rich and you will be average.
Last week someone asked me why I believed that UA would win despite the huge amount of negative press from the analysts. I didn’t really have an answer to this question at the time. Now, I realized that most of the time if you research a stock you will get about a fifty fifty opinion. Half are bullish and half are bearish. So that doesn’t help much.
But then you have to realize that these guys are just like you. They are humans looking at the same charts and reading the same news. Their views are simply how they interpret that data. Another problem is these analysts often times work with the investment banks and brokers to help THEM make money, not you. They do this by manipulating the markets via their articles and then scooping up shares or selling off shares. Recently we read a story about how analysts were beating down Snapchat so they could scoop up shares on the low. I know this happens not just in Snap but all other companies.
So why do I go against analysts? Because they are human just like me, because their opinions are biased and because they have access to the same data. I have more faith in myself in regards to how I will earn success than I do for some unknown analyst to take me there. The key is to choose yourself, your analysis and your convictions. If you are wrong, you learn, if you are right, you win.