Why taking a contrarian position pays off?

Imagine, a glorious looking, large sized cruise ship leaving the port. Seating is on a first come first serve basis.

The first man jumps on-board and gets the best seat with the best view on the ship. Then, the second man, then the third, and so forth, get on board and select their seats. Mind you, the level of satisfaction keeps reducing as each seat gets filled and the next person has to make do with whichever seat is available.

As this mad race to board the ship continues, the boat tilts a little; and slowly and eventually, it capsizes.

And, that folks, is the real danger in following the herd. Webster defines a Contrarian as a person who takes a contrary position or attitude. Like in investing, so in life, having a contrarian view produces the following results:

1. Allows to look at anything from the exact opposite end, thus avoiding falling into the trap of public opinion

2. Setting up to extract max gains when the tides turn

3. First mover’s advantage when the curve moves in the opposite direction

Mind you though; when the tide turns, people would want to follow you. And when it happens, its’ time to switch sides.