BOMI Asset Management Practice Test

A contrarian investor like Audrey typically seeks to capitalize on market inefficiencies by going against prevailing market trends. This investment strategy often involves purchasing assets that are currently unpopular or undervalued, which can lead to higher volatility and increased risk.

The typical risk profile of a contrarian investor suggests they might experience a more significant likelihood of suffering a loss initially, as they are investing in assets that others may be shying away from due to negative sentiment or perceptions. However, the rationale behind this approach is that by acquiring these assets at a low point, they position themselves to potentially gain when the market corrects and the value of the assets increases. Therefore, while there is a higher probability of initial losses, the long-term strategy is designed for the possibility of profits once market sentiment shifts.

In this context, the answer aligns with the inherent risks that contrarian investors accept as part of their strategy, emphasizing the potential for losses in the short term while hoping for eventual recovery and profit in the long term.