When Everyone Sells, Buy: Secrets of Market-Beating Contrarians

Investments in Play #337 | June 16-20, 2025

In the world of investing, the crowd is rarely your friend. The herd mentality - where investors flock to the same trades, driven by consensus - often leads to disastrous outcomes. History shows that consensus thinking tends to be wrong at critical junctures, particularly at market tops and bottoms.

Being a contrarian investor, one who zigs when others zag, can be a powerful strategy for long-term success. This approach is especially crucial during market extremes, such as tops and crashes, where emotions run high and opportunities abound.

Let’s explore why defying the crowd is often wise, with specific examples of when buying during panic and selling during euphoria paid off.

The Folly of Consensus

Consensus in investing emerges when most market participants agree on a narrative - whether it’s a booming stock or asset, a doomed sector, or an inevitable economic outcome. This agreement feels comforting as it aligns with human instincts to seek safety in numbers. However, markets thrive on surprises, and consensus often signals that the trade is overcrowded.

When everyone is bullish, prices are likely inflated, leaving little room for upside. Conversely, when everyone is bearish, assets are often undervalued, creating opportunities for those willing to go against the grain.

Contrarian investing isn’t about being contrary for its own sake; it’s about recognizing that markets are driven by human psychology, which swings between greed and fear. At market tops, greed fuels overconfidence, pushing prices beyond fundamentals. At market bottoms, fear triggers panic, leading to undervaluation. The contrarian investor exploits these miscalculations by questioning the crowd’s assumptions and acting when others are paralyzed.

Why Contrarianism Shines at Market Extremes

Market tops and crashes are the ultimate tests of any investor’s resolve. At these moments, consensus is loudest, and emotions drown out reason. Yet, these are precisely when contrarian strategies yield the greatest rewards.

Let’s look at two key principles: buying when everyone is selling and selling when everyone is buying, and back them up with historical examples.

Buy When Everyone Is Selling: The Power of Courage in Crashes

Market crashes are defined by fear, capitulation, and a universal belief that things will only get worse. This is when contrarians find their best opportunities, as assets are often sold off indiscriminately, creating bargains. Consider these examples:

• The 2008 Financial Crisis: In late 2008 and early 2009, global markets plummeted as the subprime mortgage crisis spiraled into a full-blown financial meltdown. The S&P 500 dropped nearly -57% from its 2007 peak, and headlines screamed of economic collapse. The consensus was dire: stocks were toxic, and recovery was years away.
  
  Yet, contrarian investors like Warren Buffett saw opportunity. Buffett’s Berkshire Hathaway (BRK.A, BRK.B) invested $5 billion in Goldman Sachs (GS) in September 2008, when the bank’s stock was battered. The deal included preferred shares and warrants, yielding high returns as markets recovered. By March 2009, when fear peaked, the S&P 500 hit its bottom at 666 (perhaps the most ominous bottom in history). Contrarians who bought then reaped massive gains as the index climbed to over 2,000 by 2015, a 200%+ return in six years.
  

• The Dot-Com Crash (2000-2002): After the tech bubble burst, internet stocks were shunned as worthless. The Nasdaq fell -78% from its March 2000 peak to October 2002. Consensus held that tech was dead, with the stock of companies like Amazon (AMZN) trading at single-digit prices.
  
  Contrarians who saw the long-term potential of e-commerce bought in. Amazon’s stock, which bottomed at $5.51 in 2001, soared to over $100 by 2007 and kept climbing. Early contrarian bets on tech survivors paid off handsomely as the sector rebounded.
  

• More recently, we can also look at the COVID Crash in March 2020 as well as the Tariff Tirade just a few months ago. In both cases, the S&P 500 sold off substantially (more than -30% in COVID and more than -20% intraday in April 2025), however the S&P recovered within just a matter of months in both cases.
  
  Buying the crash yielded huge returns for those investors brave enough to do so, but it also meant going against the consensus opinion of seemingly everyone in the market declaring we were witnessing the end of the world.

These examples show that crashes, while terrifying, often mark the point of maximum financial opportunity. When everyone is selling, prices reflect despair, not fundamentals. Contrarians who buy quality assets at these lows—whether stocks, bonds, or real estate—can achieve outsized returns.

Sell when Everyone is Buying: Escaping the Trap of Too Much Euphoria

Market tops are driven by greed and exuberance, with consensus narratives proclaiming that “this time is different.” Contrarians recognize these moments as signals to take profits, as valuations often outstrip reality. Here are two notable cases:

• The Tech Bubble (1999-2000): In the late 1990s, dot-com mania gripped markets. Companies with no earnings commanded sky-high valuations, and the consensus was that the internet would fuel endless growth. The Nasdaq soared, gaining 85.6% in 1999 alone. Contrarian investors like George Soros and Julian Robertson grew skeptical of the frenzy. Soros’ Quantum Fund reduced tech exposure, while Robertson’s Tiger Management closed in 2000, avoiding the worst of the crash. When the Nasdaq collapsed, those who sold near the top preserved capital while others lost fortunes.
  

• The Housing Bubble (2005-2006): By 2006, the U.S. housing market was red-hot, with home prices soaring and mortgage-backed securities (MBS) seen as “safe” investments. The consensus was that housing prices could only go up. Contrarian investors like Michael Burry, featured in The Big Short, bet against the housing market by shorting subprime MBS. Burry’s Scion Capital analyzed the underlying loans and saw the bubble’s fragility. When the market crashed in 2007-2008, his fund earned billions, with returns exceeding +700% for some investors.

Selling when everyone is buying requires discipline, as it means leaving the party early. But as these examples show, contrarians who exit overheated markets avoid catastrophic losses and preserve capital for future opportunities.

How to Be a Contrarian Investor

Contrarian investing isn’t just about doing the opposite of the crowd—it’s about rigorous analysis and emotional discipline. Here are practical steps to apply this approach:

1. Question the Narrative: When you hear “everyone” talking about a stock, sector, or asset class, dig deeper. Is the enthusiasm backed by fundamentals, or is it speculative hype? Similarly, during crashes, ask if the pessimism is overblown. Use data like price-to-earnings ratios, debt levels, or economic indicators to ground your decisions.
   

2. Focus on Fundamentals: Contrarians buy undervalued assets with strong long-term prospects and sell overvalued ones. In 2008, Buffett invested in Goldman Sachs because it had a solid franchise despite temporary distress. In contrast, tech stocks in 1999 often had no earnings to justify their prices.
   

3. Manage Risk: Contrarian bets can take time to pay off. Use diversification, position sizing, and stop-losses to limit downside. For example, during the 2008 crisis, contrarians who spread investments across sectors avoided overexposure to any single stock.
   

4. Stay Patient and Resilient: Going against the crowd is psychologically taxing. In 2009, buying stocks felt like catching a falling knife, yet those who held firm reaped rewards. Develop a long-term mindset and tune out short-term noise.
   

5. Watch Sentiment Indicators: Tools like the VIX (fear index), put-call ratios, or investor surveys (e.g., AAII Sentiment Survey) can signal when markets are overly bullish or bearish. Extreme readings often precede reversals.

The Contrarian Mindset in Today’s Market

As of June 2025, markets are navigating a complex landscape. Some sectors, like artificial intelligence and renewable energy, have seen surges in investor enthusiasm, reminiscent of past bubbles. Meanwhile, fears of inflation, geopolitical tensions, or economic slowdowns periodically spark sell-offs.

A contrarian might ask:

• Are AI stocks overvalued, trading on hype rather than profits?

• Are oversold assets in traditional industries, like energy or manufacturing, poised for a rebound?

By questioning today’s consensus—whether bullish or bearish—you can uncover opportunities others miss.

Embrace the Contrarian Edge

Consensus in investing is a siren song, luring the unwary to market tops and scaring them away at bottoms. Contrarian investors thrive by challenging the crowd, buying when fear dominates and selling when greed prevails. Historical examples, from the 2008 crisis to the dot-com bubble, show that defying consensus at critical moments can lead to extraordinary returns.

To succeed as a contrarian, arm yourself with research, discipline, and patience. In a world where the crowd is often wrong, the contrarian’s edge lies in seeing what others overlook - and acting on it.

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Read on to discover the week’s biggest winner and loser in the Investments in Play portfolio as well as all the moves I made this week in addition to my future buying and selling price targets for the positions that saw changes over the week.