The weaker the market is, the greater the chance to profit.
At least, that’s the fundamental belief of contrarian investing – a strategy of going against the current market trend, which has seen many pocket a hearty profit throughout the past.
And while the contrarian approach does come with its risks and challenges, in the current Covid climate, bad times can certainly make for good buys.
So how do you bet against the crowd – and does it actually work?
The answer all boils down to competition. In most instances, the thinner the competition, the better the time to buy or sell – and that’s a certainty of the housing market. An oversupply of properties leads to low demand, where housing prices will most likely fall; buyers are advantaged by choice and typically offer less, and sellers will list at a lower price in order to compete.
Alternatively, lots of buyers can drive prices up and lead to bidding wars – an ideal scenario if selling your home.
But while the housing market is largely dependent on how buyers and sellers interact, it’s equally shaped by consumer perception – and that’s where wider affairs (like Covid-19) can have the greatest impact.
If buyers perceive that a market is risky or uncertain, they tend to take the ‘safer’ option and hold off on moving – leaving lots of room for the contrarian buyer to walk in. It’s by nature that we conform, after all; when everyone else is buying, most people will assume that it’s the right time to hit the market (as we’ve seen with Covid’s ‘toilet paper wars’ earlier this year).
On the other hand, a contrarian buyer may see an empty open home as a ripe opportunity to secure a bargain, without any competing offers to drive the price up. Seemingly problematic features that might have turned other buyers away, such as an outdated layout, poor kerb appeal or an ‘out there’ colour scheme, could instead be scope to add value with the right approach – and grounds to negotiate a better price.
From that perspective, a good time to buy property is right now – during an ongoing pandemic, when homeseekers are feeling uncertain about the market and shopping around is therefore less competitive.
In the grand scheme of things, there’s lots of potential to make a profit (over the long term) by considering what most people are not buying – and why.
It’s this kind of thinking that’s at the heart of contrarian investing, which could also see you benefiting from stocks that have plummeted during Covid (think tourism and live entertainment) – rather than those that are soaring, such as protective wear and online streaming services.
And while there’s no golden ticket for investing, there is a bottom line: if you do the same as everyone else, you can’t expect a better result!
THIS ARTICLE DOES NOT CONTAIN INVESTMENT ADVICE, ONLY THE OPINION OF THE PUBLISHER. READERS ARE ADVISED TO SEEK PROFESSIONAL ACCOUNTING, LEGAL AND/OR INVESTMENT ADVICE BEFORE MAKING A PURCHASING OR SELLING DECISION.
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