While I haven't conducted a survey among contrarian investors, I'll wager that the results might show that contrarians battled their parents over bed-making when they were younger. Contrarians usually ask, "why," when someone tells them to do something, like when an analyst insists that investors buy or sell a particular stock. The contrarian would rather buy stocks when others sell and sell when others buy. She'll go against analysts' ratings, use different tactics to screen her stocks, and search for off-beat investments for her portfolio.

In short, the contrarian investor might be the adult who hated to make her bed when she was a kid because mom never gave her a good reason to make it in the first place.

Don't take me wrong - I happen to like contrarians because I belong to that crowd. I never heard a good reason for bed-making when I was younger, and the only reason I take the time to make it now is because I'm afraid my roommate's cat will spread his nasty fur all over my sheets. Furthermore, I know that many other investors do what analysts tell them to do, and I don't want to be part of that lemming-like crowd.

Some people might argue that contrarian investors are rebellious and that they need therapy, because they don't follow the age-old adage to "buy low and sell high." I retort that contrarian investors are usually smart as long as they don't go to extremes, because investors don't have the ability to see into the future. How does an investor truly know when a stock has bottomed out or - alternately - when a stock has peaked?

Granted, "buy low, sell high," represents a common-sense approach to the market. Contrarians, like value-minded investors, like to make profits, too; however, they approach the market from a different perspective. Some purchase stocks at high prices, but they sell "short," or with the expectation that the stock will fall. While I don't advocate short-selling because - on the whole - markets tend to rise over the long run, I'll give a brief explanation about this practice, because short-selling is a valued indicator for many contrary investors who like to purchase stocks on the upturn.

When an investor "shorts" a stock, he basically makes a bet that the stock will go down. The investor borrows shares, sells them immediately, and promises to return the same number of shares plus interest within a given time frame. If the stock falls, the investor purchases shares at a lower price and returns them to the lender. For instance, if the investor short-sells 100 shares of KAMIKAZE stock at $100 per share and the stock falls to $50 per share, he would make $5,000 profit (minus interest, brokerage and/or selling/purchasing fees, and the value of time spent watching the stock with intense scrutiny). While this sounds like an insane way to make a profit, many contrarians live saner lives than you might imagine because they look at short-sellers as indicators for stocks on the upturn.

When short interest is combined with analyst ratings, these two parameters often offer many contrarians a gauge for stock purchase considerations. For example, contrarians' ears might tingle when analysts rate stocks as "buy" or "hold." They then might check the short interest ratio on this stock to see if it's higher than 5, because high short interest ratios equal high interest in short selling, and ratios below 5 mean that the stock is in favor.

The short-interest ratio compares short interest to the daily trading volume, and it shows the number of days that it would take for short-sellers to buy back their borrowed shares based on the recent average daily trading volume. Short interest ratios usually run from 0 to 20 days and sometimes higher. When a short ratio begins to fall, the contrarian begins to look for an upturn in the stock's monetary value as short-sellers purchase stocks to replace ones that they borrowed.

Conservative contrarians - those who don't make beds but who keep clean bathrooms - also might avoid single-digit stocks, or equities which sell for less than $10. Why? Let's talk extreme volatility, as low-priced stocks are favorites among many day traders. In my opinion, lower-priced stocks often act like piranhas, because they can nibble an investor's wallet to death.

Additionally, an eye to institutional ownership in a company's stock can help the contrarian keep faith in her decisions. Institutional ownership constitutes the percentage of a firm's outstanding shares owned by large investors like mutual funds. When institutional investors stick with sell-rated stocks, it may mean that they think the share price isn't headed south for a long-term vacation from profits. The stronger the institutional support, the stronger the contrarian feels about her decision, especially if ownership remains over 60%.

These indicators provide mere suggestions to help you practice stock screens and watches, which is similar to an exploration of valid reasons for becoming a anti-bed-making pro. You can use BUYandHOLD's Stock Tracker system for free as long as you're registered (which is also free). You can also research stocks at BUYandHOLD, where each company's page lists valuable information, including links to a company's Web site, news releases, investor relations, and corporate profiles, among other pertinent items.

Lastly, for no other reason than to justify my own anti-bed-making mentality: Bed-making consumes three-to-five minutes out of every day and more if you're into hospital corners and quarter-bouncing techniques. If you multiply that time by the days in a year, you'll spend - on average - about thirty (30) hours a year with this task. Wouldn't you rather research means to invest in your future with that time? If you agree, then you (or your child) might become a future contrarian investor.

Until Next Week,
Linda Goin