The contrarian strategy deliberately relies on countertrends – including with ETFs. Investors buy when others are selling and hold on when there is panic.
• Contrarian strategy: Investors consciously invest against the market trend
• Broad diversification and low costs make ETFs ideal for countercyclical investing
• Anyone who has patience and discipline can benefit from market inefficiencies in the long term
How exactly does the contrarian strategy work and who is this tactic suitable for?
Contrarian strategy for ETFs: What is behind countercyclical investing?
In a market that is determined by emotions and trends, it almost sounds paradoxical: buy when prices fall and sell when there is euphoria. But this is exactly the principle pursued by the contrarian strategy – an investment philosophy that consciously swims against the current. This approach can also be implemented with exchange-traded index funds (ETFs) – with the aim of achieving above-average returns in the long term, as DAS INVESTMENT explains.
What does “contrarian” mean?
The term “contrarian” comes from English and means something like “opposite thinker”. Investors who follow this strategy question the broader market trend and often act contrary to the mainstream. Instead of following the trend, they see buying opportunities in oversold markets – when many others are selling out of fear.
This tactic works particularly well with ETFs because they reflect an entire market segment or index. For example, if the German leading index DAX falls sharply, contrarian investors specifically buy a DAX ETF in the hope of a recovery. Instead of following short-term hype, they focus on long-term recovery potential, says DAS INVESTMENT.
Why invest countercyclically?
Psychology plays a central role in the stock market. In phases of euphoria, investors tend to exaggerate – just as they tend to panic in times of crisis. Contrarian investors try to exploit these emotional mispricings. Because: The best buying opportunities often arise when the mood is at its worst. By identifying and purchasing undervalued assets, investors can uncover enormous return potential and increase their chances of outperformance.
In addition, ETFs are particularly well suited for this strategy because they are broadly diversified and inexpensive. They enable the countercyclical idea to be implemented with less risk, without having to commit to individual stocks.
Familiar faces
The contrarian strategy requires patience, discipline and strong nerves. Those who are easily influenced by market sentiment or seek short-term gains may have difficulty sustaining the countercyclical logic. However, for long-term investors with a cool head, it can be a worthwhile addition to the ETF portfolio.
Well-known representatives of the contrarian strategy include the “Oracle of Omaha” Warren Buffett, George SorosJohn Templeton, Michael Burry, Jim Rogers or the German fund manager Peter E. Huber.
Editorial team finanzen.net