“The time to buy is when there’s blood in the streets.”-Baron Rothschild

Many years ago, I heard this statement: “Life is hard; however, once you understand that, it gets a little easier.” Out of your life’s many pursuits, this statement applies especially to investing your money.

Most investment decisions are emotion-driven. You have heard that fear and greed drive the market. There even is an index from CNN that tracks Fear and Greed in the stock market.

In its article on contrarian investment Investopedia notes these key points:

• Contrarian investing is a strategy of going against prevailing market trends or sentiment.
• The idea is that markets are subject to herding behavior augmented by fear and greed, making markets periodically over- and under-priced.
• “Be fearful when others are greedy, and greedy when others are fearful,” said Warren Buffett, a phrase that encapsulates the contrarian philosophy.
• Being a contrarian can be rewarding, but it is often a risky strategy that may take a long time to pay off.

I think of contrarian investing is having a strategy to replace emotion-driven investment decisions with ones derived from logic and analysis. What would you like your investment decisions to be based on? Fear and Greed, or Logic and Analysis?

Note on the Fear and Greed Index Graphic above that a month ago, the Index had a Greed rating of 60. At that time, in mid-February 2020, the major stock indexes were at a record high. Now, 30 days later, on March 13, the stock indexes are down 25%, and the Index shows Extreme Fear. Investors were happy to buy stocks at record high prices and are now afraid to buy shares after a 25% decline. That is the opposite of buying low and sell high. Not a lot of investors succeed with an emotion-driven buy high and sell low “strategy.”

When the stock market crashes, you will feel fear. Knowing that you will have those feelings makes a little easier for you to weather out the stock market decline and stick to your investment strategies.