Europe has been in turmoil for some time now. Americans citizens and businesses were well aware (who could avoid the Greek headlines?), yet in the same period, the U.S. markets were on the rise in a slow but steady recovery from the recent recession.
Then the U.S. got downgraded from AAA to the unthinkable AA+. The market plummeted, citing European debt and the downgrade as the main motivation. Over the next couple weeks Europe continued its decent into debt and the USA remains downgraded, but the markets are rising again, albeit in a moody way.
It doesn't add up, and that's because investors aren't always rational. In fact, buy high and sell low is generally the norm, despite the intentions to buy low and sell high. It's a funny world.
Enter the contrarian. Webster defines a contrarian as "a person who takes a contrary position or attitude" more specifically, "an investor who buys shares of stock when most others are selling and sells when others are buying." Thus, contrarian investors tend to go against the crowd.
One mind-set of contrarians is that excessive bearishness or bullishness might signal a stock is oversold or undervalued, creating an investing opportunity before the market value corrects itself.
Contrarian investing is an extension of value investing, and if you're a follower of contrarianism, you feel pretty good about the market right now. To a contrarian, the market's excessive bearishness signals a great time to invest. And to a contrarian, there's no time like the present.
To be sure, on one knows if the market has more downside than upside in the present political and financial climate, and there's plenty of evidence and experience to suggest that a falling market reflects an legitimate danger to stock holders.
Yet until we reach a point of total capitulation, a contrarian has as much right to speculate as anyone else.
If you're a believer in contrarianism you probably like to keep an eye on the stocks seeing maximum pessimism. To help you along, here is a list of S&P 500 stocks with significant institutional selling over the last quarter.
List sorted by institutional selling as a percentage of share float. (Click here to access free, interactive tools to analyze these ideas.)
2. Alpha Natural Resources
3. Big Lots
4. Lexmark International
5. United States Steel
7. Janus Capital Group
9. H&R Block
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Becca Lipman does not own any of the shares mentioned above.Institutional data from Yahoo! finance, all other data sourced from Finviz.
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