VANCOUVER ( Bullions Bull Canada) -- This commentary is not for all investors. Sadly, many if not most investors will never know the intellectual and financial satisfaction of truly buying low and selling high.
When some company -- or even an entire sector-- is falling in price toward some long-term bottom, most investors will be fleeing in panic rather than edging closer, sensing opportunity.
The popular (but apparently mistaken) belief in the West is that the Mandarin characters that represent the Chinese word for "danger" also can be used to represent the word "opportunity". The fact that this botched translation has achieved cliche status here in the West is, in fact, because it articulates one of the most time-tested principles of Contrarian logic.
There is no better context in which to demonstrate this principle than in markets. The vast majority of investors are bandwagon-jumpers. This is in no way intended as an insult. It is a simple statement of empirical evidence and human nature.
What should any smart investor invest in: "winners" or "losers"? Most smart investors don't even have to think about that one -- naturally, you invest in the "winners" and shun the "losers." By definition, a "winner" (in market terms) is something which has already risen in value, substantially. One is jumping on the bandwagon.
Conversely, by definition a "loser" is something that has fallen in value, substantially. To truly "buy low" requires buying losers -- i.e. being a Contrarian. Thus while all the talking heads in the financial management industry parrot the words "buy low, sell high," the only people in our markets who actually walk the walk are the Contrarians.
If Contrarians are (literally) the only investors in our markets who actually practice the money-making principle of buy low/sell high then why aren't all Contrarians fabulously wealthy, and thus viewed as Market Gurus? Because sometimes when "losers" go down they never come back up again. Anyone bought any Kodak film lately?
One must be a Contrarian if one wishes to even attempt to "buy low and sell high." However, one must be an intelligent Contrarian (or at least a competent one) to do so successfully. We can summarize the challenge facing investors with a simple metaphor. Being a successful Contrarian means being able to discern between a "low tide" (which precedes a high tide), and a ship that has absolutely (and permanently) "run aground."