Millionaires Follow This Edgy Investing Rule For The Biggest Payoff

Saving isn't always easy. Low-interest rates at brick-and-mortar banks might push you to utilize online savings bank accounts instead, but the trickle of monthly interest payouts you receive is hardly anything to get excited about. Because of the middling performance of these relatively safe money-saving options, plenty of savers ultimately become investors instead.

It stands to reason most would make the jump, considering that an average savings account offers a rate of 0.61% (as of early September 2024, per Bankrate) compared to an annualized return of 7% to 9% over the course of decades, even after being adjusted for inflation (note that between 2013 and 2023, investors saw 9.48% growth; 7% and change is typical for most other study periods reaching back from the present, regardless of length).

I am a longtime investor who has eagerly taken advantage of the stock market's biggest asset: the value of compound interest built over time, whether it be through a steady accumulation of dividend aristocrats, a ballooning of ETF holdings that underpin stable longevity, or a risky buy or two — I purchased a few hundred Hertz shares at around the 40-cent mark in 2020, for instance (that one worked out for me, others haven't).

I follow a guiding light in my investment strategy that's long acted as a north star for investors far smarter and more successful than me. It's this easy-to-implement rule that helps me make the most of my investments, and it's something anyone can get in the habit of doing.

The 19th-century industrialist Baron Rothchild famously said this about the stock market, with the full quote believed to include "even if the blood is your own." This is the core methodology of edgy, contrarian investing. Everyone wants to own winners that consistently rise in price, but the trouble with that goal is twofold. First of all, the market never produces a consistently rising curve, it simply can't; but more importantly, every purchase you make in a rising stock asset is one that costs more than the prior investment. It's difficult to grow your wealth with any real gusto if you're constantly paying a premium for the stocks that you buy into. This would require the stock market to always trend upward for you to enjoy even a modicum of success.

Instead, some of the most successful investors look to buy into the market when there's a deal to be had. Undervalued shares provide the greatest mobility, and allow for a return to average to provide growth rather than the need for a major overperformance. Contrarian investing helps high-net-worth individuals grow their portfolio with tremendous potency, and it is a strategy anyone can leverage.

I, for one, am a big believer in buying like crazy when the stock market starts to turn sour. In fact, analysts of all stripes suggest the worst thing you can do when bear market conditions take hold in the stock market is to sell. Instead, buying as much as you can gives you underperforming prices for stock assets that'll eventually return to their prior positions of strength, and with it, your value will skyrocket as a result.

In a similar vein of thinking, Warren Buffett offers his own nuanced take on the use of contrarian investing strategies. Buffett is a financial celebrity the pros hold huge respect for, and he's someone that any investor, no matter their standing, can emulate. He's a value investor, first and foremost, and has offered many hot takes on the value of buying when the stock market is trending south. Buffett has commented that investors "... pay a very high price in the stock market for a cheery consensus," suggesting that stocks everyone agrees are valuable will cost you more than they probably should.

But Buffett takes the position of contrarian investing a step farther than its simplistic format. He's said investors should "be fearful when others are greedy and be greedy only when others are fearful." It's crucial to understand where Buffett stands as an investor before jumping right into a strategy of buying up assets that others actively steer clear of, however.

Warren Buffett spends most of his "investment time" reading and researching. He isn't a velocity trader who works on trending patterns or short-term indicators. Instead, he takes time to understand how a stock's price may react to certain changes in the market. A short-term downward movement doesn't mean a company is headed for catastrophe, it only suggests pressure in the moment that may continue to squeeze profits or subside with new changes coming down the pike. For Buffett, when short-term thinking sends other investors buying or selling in large numbers, it signals for him a potentially lucrative opportunity to do the opposite.