By
Borsgade
In his recent blog post NYU professor Aswath Damodaran examines the popular investment advice to “buy the dip” – that is, to purchase stocks or markets after sharp declines.
He explores the various forms of contrarian investing, the historical evidence supporting and challenging these strategies, and the psychological demands required to succeed as a contrarian investor. Aswath urges investors to approach contrarian strategies with caution, discipline, and self-awareness, rather than simply following the crowd or relying on historical averages.
Here are the key takeaways:
A rational decision-maker in the midst of animal spirits may feel that he or she has an advantage in this setting, and rightly so. That said, buying when the rest of the market is selling takes a mindset, a time horizon and a stronger stomach than most of us do not have.
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