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Sep 30, 2022

Opposite Day

By:Dylan Ratigan

It isn’t easy to see opportunity when all that can go wrong is going wrong. If your house burned down, it’s hard to focus on the chance to build a better home. If a relationship is ending, it’s hard to picture finding happiness with someone else. And if the stock market is crashing or liquidity is drying up, it’s hard to see how those decreased valuations might actually mean increased potential upside. Juxtapose that with the old adage of, “buy low, sell high” and you have quite the conundrum.

As humans, we tend to be more reflexive than strategic. We get caught up in the events of today, the worst case scenario, the negative consequences. The same trap exists when things are going well. When markets fall, we worry they will continue falling. When markets reach new highs, we assume they will continue going higher. In other words, we are not particularly adept at seeing the other side.

Why are we programmed like that? Who knows. Still, it’s likely because of our inability to see beyond today that explains why we ascribe adjectives like “gutsy” to people willing to say the complete opposite of what everyone else is caught up believing. But gutsy is synonymous with opportunistic. 

It takes courage to take a position opposite of everyone else. It takes even more courage to put money behind what is likely an unpopular opinion. Buying stocks in a bear market is tough when you worry prices are going to continue falling. Selling stocks into a bull market is equally difficult when you assume prices will continue to rise. But that is what buying low and selling high is at its core. And that’s also why it’s so much easier said than done.

People who are successful tend to have some common characteristics. They are motivated. They possess a strong work ethic. They see demand for a product or service. Most importantly, they aren’t afraid to go in a direction opposite of everyone else.

Calling a top in a bull market and saying the party is over does not make someone pessimistic. Conversely, calling a bottom in a bear market doesn’t make someone an optimist. It simply means there’s a recognition of opportunity on the other side, opposite what the herd believes. It’s what makes a market. It’s what allows for price discovery. It’s what bookies relied on and online sports betting now relies on.

The nature of humanity can incline us to go along. Go along with what everyone else is doing. Go along believing if everyone else thinks something, they must be right. Going along with everyone certainly seems safe. There’s safety in numbers, right? But safety and opportunity are in many ways polar opposites. When you’re willing to say the exact opposite of what everyone else is thinking, saying and doing; when you’re willing to avoid the safety of pack mentality; when you’re willing to take the other side, that is when you open the door to real opportunity.

Special Projects writer Josh Fabian contributed to this article.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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