Reverse investment strategy uses the theory of behavioral finance, which violates human nature, so it is difficult for most investors to operate, but it is indeed a very effective fund trading strategy if used well.

From the specific investment practice, the reverse investment strategy can be divided into two major strategies: reverse market cognition and reverse market attention.

Theoretical basis of reverse investment strategy

Reverse investment strategy is to buy assets at a lower price by digging up market misconceptions or paying attention to blind spots, and wait patiently for relevant assets to get market attention again or be correctly priced by the market.

From the source of income, the reverse investment strategy includes the return of valuation improvement and the return of investment with cognitive differences.

Key points of reverse investment strategy

First, find companies, industries or factors that are mispriced by the market.

For fund investment, anti-market attention is a good strategy. Because there may be mispricing of individual stocks in the market, funds often involve multi-industry investment in the whole market, so the probability of misperception is much lower than that of low attention.

Second, look for targets whose fundamentals have not changed much, but are not concerned by the market, and buy them in reverse when the price is extremely low or the attention is extremely low.

In different market cycles, funds have different aesthetics, which leads to overvaluation of stocks held by some funds and significantly undervaluation of stocks held by some funds. When hot money in the market pursues high assets and completely ignores low-valued assets with stable fundamentals, low-valued assets will have the conditions of excess returns in the future.

Third, wait patiently for the market to get too excited before selling.

At this point, bravely buy in reverse and wait patiently for the value of undervalued assets to be discovered.

Advantages of reverse investment strategy

If the reverse investment strategy is used properly, it can obtain better investment income and higher security.

Because not only can you get a stable return on the fundamentals of the investment target, but the effective management of the fund can also get a return on the repair or improvement of the valuation. Reverse purchase makes investment safer.

Disadvantages of reverse investment strategy

The biggest disadvantage of reverse investment strategy is that the time is unknown. Because we can't predict when those decadent things will reappear in the future, because the abnormal aesthetics of the market may be strengthened by the blind follow-up of retail investors and last longer than we expected.

Reverse investment strategy should bear greater psychological pressure. This is the biggest test for ordinary investors. On the one hand, the high valuation target continues to rise and the income is rich; On the one hand, the low valuation target stagflation or even decline, and the income is bleak.

In this contrast, investors who adopt reverse investment strategy need to have good psychological quality to bear greater psychological pressure.

At the same time, the reverse investment strategy also needs to pay attention to the fundamental changes of investment targets.

Because sometimes the market will reflect the future fundamental changes in advance, if the analysis is not accurate enough, it seems to be underestimated when buying, but with the passage of time and the deterioration of fundamentals, investors may fall into a deep value trap and lose time and money.

In fund investment, combined with index valuation, reverse investment strategy is also widely used in index fund investment.

I hope the above contents are helpful to you.