Often, while investing, we do not pay any attention to what kind of investment we like.

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      Often, while investing, we do not pay any attention to what kind of investment we like. The way of investment should be in line with your ideas.

     There are many investment ideas in the world. The most popular advances are progress, value and reversal investment. Here we discuss the inverse investment style.

Growth Investment Style:

    It invests in stocks of companies that have indicated better than average progress. Even if the share price is higher than the ratio of income or book value. The strategy of buying and holding is adopted in this. Goes with a long-term view in the style of progress.

Value Investment Style:

   The basis of investment in value is investment and estimates. Ben Graham and David Dad promoted this style. This is the complete opposite of the Pragati style. It analyzes the basic components of companies. Shares that remain undervalued below the expected price are bought.

   It is treated as a reverse investment, but it does not happen. It is an investment style that moves around the basic components of the stock. In this, market sentiment is not very important, whereas in the inverse investment style, sentiment is very important.

Reverse Investment Style:

   Contrary to what is commonly believed, the style of investment is called inverse investment. Investments are made when the public recognition is wrong. The leading investors to reverse investment are Warren Buffet, David Dreman, John Neff. The person investing the money in reverse investment style also takes into consideration the Price to Value Ratio (PE) and Price Book Value (PBV) ratio.

  He looks at the sentiment to know the pulse of the market. This person invests when the trend is reversed. However, it does not always move in the opposite direction from the market.

    Inverse investment style can often be converted into value based investment. The value investor concentrates on the basic components and trades. He pays more attention to the intrinsic value of that share. This is done on the same stocks whose prices can be predicted.

   Inverse investors invest in the hope that they will sell and exit when the market is at peak height.

What do investors say

David Dreman, considered a Contrarian investor in the Nifty-Fifty era, has said about the inverse (Contrarian) investment that stocks which are good fundamentals and have a lower value to earnings ratio or to book value Shares outside the trend are bought when the price is low or the dividend yield is high.

James Fraser in The Fraser Opinion Letter states the main basis of the analysis-

  • Immediate political-economic conditions
  • Crowd crop
  • Popular Assumptions and Predictions

Warren Buffett describes it in even simpler terms -

"I'll tell you how you can be rich. Close the doors. Be afraid when others are greedy. Be greedy when others are afraid."

When there was a boom period during 2003–2007, the Sensex dropped 1000 points in four trading sessions. In 2008 there was a recession all around. The market fell to a low of 7,000. Experts were also awaiting a huge recession. On the other hand, those investing inversely benefited from it.

Warren Buffet openly stated that he invested most of his investment in stocks. After that the world markets kept improving.

Sources of successful reverse investment:

  • In a falling market, the reverse investor takes more risk. Takes less risk when the market is high.
  • Low value shares do not necessarily give good profits.
  • The mantra of successful investment is to invest in disciplined manner.
  • Manage risk.
  • Research hard.
  • Inverse investors need expertise and trust.