Trading Against Market Psychology
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Premise: The equity market tends to trade on emotions. Stocks get over-priced based on momentum and trader's emotions on certain stocks. Then it is only a matter of time before they go back down to a more sane P/E level since their price is not based on any underlying financial reasoning. The internet boom and bust is only the latest and greates example. I am wondering if there are any websites that address this very issue. When I did my own search "market psychology" kept popping up; however, every website that I visited treated "market psychology" as way for an individual trader to stay focused on their trading strategy. Which is NOT what I am looking for. What I am looking for is a website that describes methodologies used to trade against market psychology or offers a fund or advice column based off of this premise.
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Answer:
Hi! Thanks for the question. What you are actually looking for is a ?Contrarian Investing? strategy. This is the investment lingo for going against popular market psychology. I have found the following articles and websites that discuss this concept plus books and funds that can help you in developing such a strategy for your investments. Articles/Websites: ?Defining ?contrarian investing?? http://www.westshorepub.com/biznews/lib/july97/defining.html ?Contrarian Investment Strategies: The Next Generation? http://www.travismorien.com/FAQ/shares/contrariantng.htm ?Contrarian Investing? http://www.deanlebaron.com/book/ultimate/chapters/contrary.html ?Contrarian Investing is a Rational Approach to Investing? http://www.contrarian-investing.com/contrarian_investing.htm ?Contrarian Investment Philosophy? http://www.powerinvestor.com/Primer/Stock-Investing-Theories-and-Strategies/Contrarian-Investment-Philosophy.htm ?The low P/E, P/CF, P/D and P/BV Strategy? http://www.contrarian-investing.com/contrarian_strategy.htm ?Do you like contrarian investing?? http://www.the-adviser.com/Stocks/contrarian.htm ?Contrarian Investing? http://www.fool.com/news/foth/2001/foth010507.htm ?AN EXAMINATION OF CONTRARIAN STRATEGIES IN THE USA AND MEXICO? http://cursos.itam.mx/mhess/download/studentprojects/ContrarianStrategies.PDF ?Contrarian investment strategies using financial ratios? http://www.behaviouralfinance.net/glamour_value/Sker00.pdf ?Counter stockwise? http://216.239.57.104/search?q=cache:fd43X4UszRgJ:cbs.marketwatch.com/news/story.asp%3Fguid%3D%257BA7C43F95-E1DB-4A4F-934A-798EA9D108A0%257D%26siteid%3Dgoogle+contrarian+strategy++&hl=en&ie=UTF-8 ?Contrarian Chronicles? (article collection) http://moneycentral.msn.com/content/p21796.asp ?Alien in a Crowd ? http://www.wallstraits.com/main/article.asp?id=165 ContraryInvestor.com http://www.contraryinvestor.com/ ?A Further Re-Examination of the Contrarian Investment Strategy: Evidence from Multivariate Tests? (An article against contrarian investing) http://econwpa.wustl.edu/eps/fin/papers/9307/9307001.pdf ?Mean Reversion of Size-Sorted Portfolios and Parametric Contrarian Strategies? http://www.be.wvu.edu/divecon/econ/balvers/MFGROPP.pdf ------------------------------ BOOKS about Contrarian Investing: You can find a good list of books plus reviews at the Amazon website. Here is a link to the list of contrarian investing books. Amazon: Contrarian Investing Books http://www.amazon.com/exec/obidos/search-handle-form/102-9411835-4959360 ------------------------------- FUNDS: with Contrarian Investment Philosophy FBP Contrarian Equity Fund http://www.fbpinc.com/pdfs/MFEquityProfile%20-%2012-31-03.pdf Dreman Value Management http://www.dreman.com/web_site_pages/65/10/default.asp?header=65&link=10 Fiduciary Management Inc. http://www.fiduciarymgt.com/html/fmivx_home.html FPA Capital Fund Inc. http://www.fpafunds.com/capitalfund_strategy.asp CLIPPER FUND http://www.clipperfund.com/aboutcf.html Lighthouse Capital Management https://www.lighthousecapital.com/LIGHTHOUSECAPITAL/WEB/me.get?WEB.websections.show&SCH5290_194 Orbis Mutual Funds http://www.orbisfunds.com/invqa.html Parnassus Investments http://www.parnassus.com/Parnassus_Fund.html Tocqueville Asset Management http://www.tocqueville.com/pcs/pcs_invph.shtml RS Investments http://www.rsim.com/funds/cf.html Search terms used: Contrarian investing strategy philosophy funds I hope these links would help you in your research. Before rating this answer, please ask for a clarification if you have a question or if you would need further information. Thanks for visiting us. Regards, Easterangel-ga Google Answers Researcher
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