The following post is written by Roger Conrad.
At its core, the stock market is still pushed and pulled by the same emotional forces as it was decades past, when individuals dominated trading. Indeed, today’s market is arguably more susceptible than ever to the ebb and flow of passions, thanks to the ability to move trillions of dollars at the touch of a button.
Consequently, the principles of contrary investing—gauging the madness of crowds to identify value as well as overvalue—are particularly relevant today. In light of the market’s current volatility, you ignore these proven truisms at your peril.
Over the near term, stock prices tend to reflect popularity, perception and other ephemera. When we buy, we look for stocks that possess solid long-term prospects, but trade at prices beaten down by investor fears.
The flip side of fear—irrational euphoria—can be just as strong an emotion, pushing favorite stocks to ridiculous heights. When stocks soar too high, we sell or at least take partial profits.
Of course, sometimes a stock falls or rises for valid reasons. That’s why when you bet against the crowd, it’s critical to do so from firm ground, with a broadly diversified portfolio of companies that feature strong balance sheets and reliable revenue.
Below, I focus on one beleaguered but sound household name that is now an excellent contrary bet: Intel Corp (NSDQ: INTC).