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Momentum or Contrarian Investment Plays: Which Way Will You Go?

Momentum investing: Deploy money in the “trend”, hope the “trend” to keep up, and keep reaping the rewards!!! Current example – precious metals like gold and silver have delivered super returns in past one year. Those BUYING GOLD & SILVER now are following a momentum strategy. They expect the good times for gold and silver to continue!!!

Contrarian Investing: You are expecting the trend to reverse. Say I have good amount of investment in gold. I feel the price has run it’s course and now buying into gold or even not selling some is a high risk as prices may pull back (trend reversal). On the contrary, equity markets have not done well in recent past. Nifty 500 index return for 1 year ending 30 Sep 2025 is NEGATIVE 5.28%. If I decide to SELL GOLD and BUY NIFTY 500 INDEX, I am being a contrarian.

Both have pros and cons. Personally, I prefer contrarian play.

Cons of Momentum play: the (up)trend may stop once you put money on the line. Worse, it may reverse and you will now start losing money. At some point of time, you will have to decide if you need to take the hit and try another day. Essentially, you got late for the party

Cons of Contrarian play: here, you are betting on the tide to turn. Key concern – it may take really long time for the tide to turn and waiting game can be a real test of patience. A quick example – I sold some gold in April 2025 and deployed money in equities as a contrarian call. Gold continued to rise and equity remained nearly flat. My patience being a contrarian is under severe test!!! Not that I regret selling gold. Only issue is I am not able to decide on selling gold further.

Still, no harm in trying either strategy. Though strict decision making will be required. I will do it like this, especially if I am playing the momentum game:

-          If gains start flowing, I would start skimming profit for every 10% gain

-          Stop loss at 10% fall: exit 50%

-          Stop loss at 20% fall: exit completely and try another day

But then, each to their own. Beware of taking rantings in this blog as investment advise.

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