#LearnAndDiscuss High probability of profits in being a contrarian investor.📈🚧
If there is something that has been proven throughout the history of financial markets, it is that the consensus is wrong more often than it is right.
If it weren't so, all analysts would be rich. And obviously, this is not the case.
Most advisors and managers tend to miss out on the big rises. And they are usually unprepared when the big falls arrive.
You can count on one hand the number of analysts who recommended building a liquidity reserve before the current tariff chaos occurred (to be able to buy cheap taking advantage of the fall).
And the positioning data in the moments leading up to big rises almost always coincides with a higher level of liquidity. It doesn't matter whether they are retail investors or hedge funds.
It is enough to review the evolution of the “put-call” ratio, which measures bets against the market versus in favor: records of “short” positions almost always coincide with moments prior to big rises.
The most recent - and notable - case was in the summer of 2023.
And the most active in the derivatives market are alternative management funds. This “rare bird” of an investor, advisor, or analyst who tends to do the opposite of most is called a contrarian investor.
It cannot be said that they are always right, but the fact that the market consensus tends to be wrong more than right leads to the conclusion that the contrarian investor is more accurate than those who systematically follow the herd.
Hence, it is interesting to consider from time to time what they would do. And then apply the filter of common sense, since obviously, it is not enough to just go against the grain to be right.
Let’s clarify that we are not making any kind of investment recommendation; we are simply outlining what the consensus says and what we think the maverick would do, not what we are going to do ourselves.
