Trading on future popularity

The contrarian investor tends to select the opposite of what most people are investing in at the moment by looking for healthy companies in unpopular industries or overlooked firms. Stock that is falling in price becomes more attractive while one rising in price becomes less so. By purchasing the stock of companies that are out of favour, the contrarian can make profits when these companies become popular again.

Stocks with low market prices and low P/E ratios are particular favourites with contrarians. However, the contrarian should guard against low stock prices which are in fact deserved, Before deciding to make an investment, contrarian investors should also consider the company's balance sheet, management and market structure.