Succesful Investing - The pain of being contrarian

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We humans have a willingness to suppress our own thoughts to conform to those in a group. Our inherent crowd behavior helped us to survive in groups thousands of years ago but this type of behaviour in investing today is detrimental to our portfolios and financial health. Ben Graham observed that the intelligent investor is likely to need considerable will power to keep from following the crowd.” Read our latest investment presentation.

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Succesful Investing - The pain of being contrarian

  1. 1. The Pain of Being Contrarian “How not to be your own worst enemy”
  2. 2. The Pain of Being Contrarian
  3. 3. Introduction  To do what the majority do must by definition mean that the results will at best be average!  Active managers with large portfolio’s are in danger of managing closet index funds with higher fees so they will do worse than an index  Alternative – go against the herd – BE CONTRARIAN
  4. 4. “We humans have a willingness to suppress our own thoughts to conform to those in a group. Our inherent crowd behaviour helped us to survive in groups thousands of years ago but this type of behaviour in investing today is detrimental to our portfolios and financial health. Ben Graham observed that the intelligent investor is likely to need considerable will power to keep from following the crowd.” So how can we be contrarian investors……
  5. 5. The Pain of Being Contrarian There is pain in going against the crowd:  It triggers the amygdala, the brain’s centre of emotional process and fear  Nonconformity triggers “fear” and “pain” This is why successful investing is difficult, it is counterintuitive and painful, and few people do it consistently well!
  6. 6. The Pain of Being Contrarian Successful investing requires three main attributes:  Reasonable intelligence  Sound principles  Firmness of character
  7. 7. The Pain of Being Contrarian Loss aversion:  Most people dislike experiencing loss 2 ½ to 3 times as much as they gain pleasure from gains (i.e. it is 3 times more painful than joyful)  The X system’s highest priority is to avoid pain so high sensitivity and desire to avoid
  8. 8. The Pain of Being Contrarian Being a contrarian investor is painful consider:  Buy stock at £10, falls to £7  Asked investors if they wanted to sell, they said no  Stock sold by accident, 79% of people didn’t buy it back A contrarian investor will be able to stand against the herd and reap the investment returns.

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