For example, widespread pessimism about a stock can drive a price so low that it overstates the company's risks, and understates its prospects for returning to profitability.
These general principles can apply whether the investment in question is an individual stock, an industry sector, or an entire market or any other asset class.
However, a contrarian does not necessarily have a negative view of the overall stock market, nor do they have to believe that it is always overvalued, or that the conventional wisdom is always wrong.
Arguably, that margin of safety is more likely to exist when a stock has fallen a great deal, and that type of drop is usually accompanied by negative news and general pessimism.
Economist John Maynard Keynes was an early contrarian investor when he managed the endowment for King's College, Cambridge from the 1920s to '40s.
By comparing the VIX to the major stock-indexes over longer periods of time, it is evident that peaks in this index generally present good buying opportunities.
The Fidelity Contrafund was founded in 1967 "to take a contrarian view, investing in out-of-favor stocks or sectors",[16] but over time has abandoned this strategy to become a large cap growth fund.
This lends credence to the contrarian's belief that investments may drop "too low" during periods of negative news, due to incorrect assumptions by other investors, regarding the long-term prospects for the company.