As longtime readers know I am a contrarian, both in my stock selection and in my market view. I bought into the idea of buying when there was blood in the streets early in my career. However, it took a long time for me to make a contrarian strategy work. The biggest (but not the only) mistake I would make was to get too large in a trade. My ideas tended to work but there were times when I had to puke up positions because the losses I was sustaining were too much. Buying into nasty declines is tough because they often last longer than imaginable.
One of the largest improvements I made over the years is that I don't get shaken out of trades as often. It has been a long time since I puked up a position out of pure fear and pain. This past earnings season was bad for my core positions and I took a decent sized hit. At the same time, while I was not terribly net long my market exposure into a 9% decline made my losses worse. My reaction was to cut some lower conviction positions so that they did not turn into losses as well. Late last week I thought the market was ripe for a rally but I did not buy. I didn't want to put myself in the position where I might have to sell.
This week a lot has changed. My individual positions started performing better. I was able to use today's strength to write some covered calls. If I do find myself in a position where I believe the risk/reward is favorable I will now be able to act.