Investing anti-cyclically means not following the general trend when making investment decisions. This means, for instance, buying shares when the stock market is performing poorly, while most investors are unsettled and sell off securities on a large scale under unfavourable conditions. Successful anti-cyclical investors – known as contrarians – then benefit from rising prices. The same applies when stock markets are performing well. Lots of investors then want to jump on the bandwagon by purchasing securities. Anti-cyclical investors, meanwhile, sell their shares off when this happens. They anticipate a downturn and aim to sell at the optimal time to make the greatest possible profit.
Created on 18.03.2020
Should I invest anti-cyclically now?
We are currently experiencing a period of stock market correction. Leading indices around the world have suffered slumps. However, the current situation is nothing new – stock market corrections have always been part of the world of finance and continually occur at irregular intervals. Many investors are now considering what the current market situation means for their investment strategy and assets and what the best investment approach is. For example, should I invest anti-cyclically now?
Is anti-cyclical investment the right option for me?
Although poor economic conditions and stock market corrections often unsettle investors, they can also present opportunities, particularly if you start investing at a low point and prices then climb again. It’s obviously very difficult to catch the “right time”. Nobody knows exactly when the low point has been reached and when prices will start rising again. Some investors are willing to buy securities during periods of stock market correction, consciously running the risk that their value could continue to fall or be completely wiped out. Others fear further downswings and prefer to offload securities. Be aware of this and consider whether anti-cyclical investment is consistent with your investment strategy. Your advisor would be pleased to help you assess your options.
Keep your cool
It is vital that anti-cyclical investors are able to keep a cool head. They must not start to panic if prices continue to drop instead of climbing as anticipated – and if the rest of the world seems to be pursuing a different strategy from theirs. Emotional and knee-jerk reactions must be avoided and the defined strategy always kept in mind. As is so often the case, the key factors here are a diversified portfolio – which enables you to offset losses in particular sectors, currencies or regions somewhat – and a long-term investment horizon. This allows you to manage the risk assumed and to make the most of every situation on the stock market.
