Contrarian investing is never easy. Especially when you are early. Being early makes you see your investments temporarily lose value. At times, it can be as steep as 15%-20%. Those times will be testing. You hesitate to invest more. You wonder if you are wrong. The temptation to get away from pain is too high.
Most investors tend to bail out of painful investing. They tend to believe they were wrong simply because the market is mispricing their investments. Call it Murphy’s law or anything you like, the very stocks that are sold start rising after we sell.
What does this tell us? It only teaches us a harsh lesson – that our conviction was not strong enough to withstand Mr. Market. We were vulnerable when we should have been strong. The tendency to shift from such ideas which are painful to those which are painless can be doubly hurting. This could lead to a reversal in fortunes both ways.
At a time when consensus dominates over contrarian investing and the domination is near total, it is tempting to believe we are very close to inflection. But, we still need more evidence. The irony is that we need to show conviction when the evidence is inadequate. That is undoubtedly going to be the genesis of future investing success.