Why contrarianism is effective
Conclusion: Efficiency in the short term, inefficiency remains in the long term
One word explanation
Contrarian = Standing on the other side of the market's overreaction
background
- AI/HFT instantly eliminates short-term price differences
- News is incorporated instantly
essence
- Short term: Almost efficient (hard to win)
- Long-term: Misunderstanding, fear, and apathy remain
Principle 1: Shift the time axis
Conclusion: Fight at a different time than others
One word explanation
Time axis = investment decision period
practical work
- Others: a few seconds to a few days
- Individual: several years
Specific example
- Sharp decline due to bad news → Consider whether it will recover in a few years
- Temporary profit decline → Break down whether it is structural or temporary
Principle 2: Spot the overreaction
Conclusion: Aiming for price deviation due to emotion
One word explanation
Overreaction = being sold for more than its original value
sign
- Sharp decline (-20% or more)
- Bad news reported all at once
- Rapid increase in trading volume
Caution
- Some companies are really bad
- Don't buy just because it's "cheap"
Principle 3: Target inefficient areas
Conclusion: Opportunities where no one is looking
One word explanation
Inefficiency = a state where information is not reflected sufficiently
Specific example
- Small caps (less coverage)
- humble industry
- Fields that are temporarily disliked
points
- The smaller the amount of information, the higher the analysis value.
- Popular stocks have already been factored in
Practice framework (important)
Conclusion: Judge by procedure, not by feeling
contrarian checklist
- Can you explain why it's going down?
- Can be distinguished as temporary or structural
- Draw a scenario 3 years from now
- Confirmed whether the finances are sustainable
- Market sentiment is extreme
Advantages and disadvantages of reverse tension
Benefits
- Can be bought cheaply
- Returns tend to be large
- You can fight as an individual
Disadvantages
- timing is difficult
- Long unrealized loss period
- If you make a mistake, you won't recover.
common mistakes
- Too sexy
- Buy without checking the reason
- Seek results in a short period of time
Summary
- You can't beat algorithms in terms of speed.
- Individuals have an advantage over the “time axis”
- Contrarianism is a strategy that aims for inefficiency
action steps
- ① Analyze the causes of sharply declining stocks
- ② Determine whether it is temporary or structural.
- ③ Split investment on a long-term basis