We all are aware and hear the word Contrarian or Contra Funds for a long term. How many of us are aware about this term and how some funds got the name as ‘Contra Funds’ ? This is a small explanation about the contrarian theory using in the investment world.Contrarian investment is nothing but, it emphasizes out-of-favor securities in the low P/E ratios but having strong intrinsic value.Contra investing works against prevailing market trends by buying assets that are performing poorly and then selling when they perform well. This equities commonly have low P/E ratios but very good intrinsic value and does not have any interest from other investors to buy and hold. Identifying and buying contra stocks are little painful but a good study and little knowledge can make you able to identify and buy this black horses and which will never cheat you.To know how to identify the intrinsic value of a stock, click hereStocks falling under the contrarian philosophy will be available from the market with a very low price, which less than its original intrinsic value. This is commonly from out of favor sectors that commonly not picking by others for time being. Once the value of this stocks find unlocking and start get the market attentions, this stock will provide you enormous gains to the investors. In an other mean, contra investors buy undervalues stocks and sell over values stocks.There are some risks also tailored with contra investing:This is come with extra risk of moving against momentum and if calls go wrong, this stocks could face prolonged under performance.This clearly tell that an investor with extra patients only can consider contrarian approach. An investor should have 5 or more year investment horizon can go for contra stocks and that is highly advisable. Contra approach will not sute for short term investors and a possible erosion of their money can happen.
So take care and be a successful contra investor as well as a long term investor. Comments please if you like this article.