Baron Rothschild, a member of the powerful 18th century banking
dynasty, is credited with coining the phrase, "Buy when there's blood in
the streets." Rothschild recognized that the smartest purchases are
often when things appear so dire that nearly all hope has been lost.
This
idea is at the heart of contrarian investing. A contrarian is an
investor who goes against the herd. They often buy beaten-down stocks in
hopes that a positive catalyst will soon drive the price higher. They
know that the most value and potential profits come from shares that
have been beaten down.
Obviously, being a contrarian does not
mean buying stocks that are plunging due to solid
fundamental reasons
with little hope of recovering. Successful contrarians only invest in
beaten-down companies that careful research indicates are about to turn
around. (more)
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