What does it mean to be a contrarian investor? In simple terms, contrarian investing involves buying or selling assets which go against prevailing market sentiment. And right now, as anyone who has been paying even a bit of attention to markets will know, that prevailing sentiment is very poor.
This sentiment is also generalised. In any given year, a combination of business, consumer or regulatory factors will mean some sectors are struggling or out of favour, even if returns are broadly healthy across the economy. Ordinarily, that can present opportunities for contrarians to spot a rebound in unloved stocks. But currently, long shadows extend across almost everything.
This creates an aversion to risk assets, and something of a bind for contrarians. If the market is pessimistic about the outlook for most sectors, how can the contrarian tell when sentiment toward a sector or company is irrational? Do falling prospects across multiple sectors suggest the herd view might be right? Or is the true contrarian approach now to buy the dip?