The Value of Counterintuition

In value investing, there is this notion that being a contrarian -- i.e., going against the crowd -- is immensely valuable. There's no denying the value of an independent thought process. But I often see people being contrarian just because it sounds like the noble thing to do: Wall Street is a casino they say, so I will bet against it. Guess what? A majority of time, the odds are always in the house's favor. To simply go against the consensus of the market -- or the tens of thousands of other participants who determine the market's moves -- without an intense level of research and analysis is indeed gambling.

What I see as very important aspect of investing, however, is the notion of counterintuition. The great Howard Marks of Oaktree Capital Management defines counterintuition as the idea that a low-quality asset can be safer than a high quality one. It's the understanding that securities get riskier when more and more people begin to praise them. Most of all, risk can be elevated when you think you know something vs. admitting that you don't....367 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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