Are you analytical? Impatient? Ambitious? Courageous? Fearful? Are you like Warren Buffett? Like Bill Ackman? Or perhaps more like Cathie Wood?

What is an investment philosophy?

Drawing a sharp line between investment philosophy and strategy isn’t straightforward. The two are closely linked but mean slightly different things.

– Are you a “contrarian investor” who dares to go against the market?

Any hedge fund manager can be labeled contrarian, but even investment legend Warren Buffett is often placed in that category. “The Oracle of Omaha” is known for his firm belief that there are undervalued companies out there. It’s just a matter of finding them and having the courage to trust the analysis – regardless of what others say or do. The philosophy is often called “contrarian investing”; simply being contrary.

A few years ago, “contrarian investing” could be said to have gained significant traction when a group of retail investors on the Reddit forum decided to go on a short-selling spree, driving up otherwise unremarkable stocks like GameStop (tip: see the movie Dumb Money).

Market outlook

“Our best holding period is forever.” – Warren Buffett

The contrarian spends a lot of time analyzing consensus, either for the overall market, at the sector level, or down to individual stocks. Then, they sharpen the needle and poke a hole in the consensus view. Like Buffett’s early analysis as an Apple shareholder: “Smartphones are the next big thing.” So, they buy and wait until reality aligns with their analysis – and cash in.

“Price is what you pay, but value is what you get.” – Warren Buffett

But it can take time, of course. One of the virtues of a contrarian investor is patience, Forbes notes. It also requires a hefty dose of ice in the stomach at times, waiting for other investors to see what you’ve seen and start adjusting their calculations.

This means, among other things, that contrarians like to buy when others are selling. “Buy when there’s blood in the streets,” goes a saying. The dream is, of course, to hit the bottom and ride the wave back up, but even if you don’t pinpoint the turning point exactly, the investment can still pay off as soon as prices turn upward.

“The most important thing is to know what you don’t know.” – Warren Buffett

Advantages and disadvantages

If you’re successful with your bet, it can yield a hefty sum – it’s also a great feeling to be right when everyone else is wrong.

But weak knees need not apply; This is a philosophy where risk is given ample space, and it could just as well be that your analysis was way off, while the herd was right. The analysis, yes. You have to do it yourself. You have to be firmly grounded to stand steady if you’re going against the stream, and that requires both time and knowledge.

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