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Suddenly, Amazon Doesn't Love Its Moms AnymoreContrarian (noun), pronounced con.trar.i.an. : A person who takes a contrary position or attitude; specifically : an investor who buys shares of stock when most others are selling and sells when others are buying.
Turning things inside out, and upside down is basic to contrarian and value investing. In this article I will share my WOW Principal of investing.
WOW Principal origin: Observing how my wife manages our family I have been in awe. It's true: "a mother's work is never done." To express my amazement, I have exclaimed WOW often. MOM upside down spells WOW! There are many times that Mom's world is upside down, juggling three kids and an ever increasing number of commitments with spectacular efficiency. She is also an architect and my partner in our architecture practice. In my bio, I referred to my relationship with my wife as my best investment, and since we met many years ago, I have been collecting dividends.
So, it is with my wife in mind that the WOW Principal of investing came to be. It is a perfect fit with my investing style. Simply stated: If, after thorough analysis of an investment, you are not in awe of your findings (company data, news, trends and surprises) and you do cannot exclaim WOW! (double WOW is even better!), then it is not a worthy investment.
If however, the investment does reach WOW status, you are in business. I do not invest unless I think there is an amazing opportunity and any risk is understandable and acceptable. Good is not good enough, it must be a great opportunity, and the case must be very convincing.
When things are upside down or people's perspective is jaded, there may be a deep value opportunity and my interest is peaked. At the point of discovery is a moment that begins when I say "hmm," and stroke my beard. Then I spend time with my investigation and analysis. But I do not fork over any cash until I find the WOW factor(s). If you find yourself scratching your head and saying huh? instead of "Wow," move on!
You probably cannot cast yourself in a new mold and just become a contrarian over night. But you can become a deep value investor and study Graham, Buffett, Munger, Templeton, Kirkorian and many, many others in order to learn to hone these sensibilities over time.
When WOW Works:
The WOW principal allowed me to buy Merck & Co., Inc. (NYSE: MRK) when the stock collapsed in the initial stages of the Vioxx scandal (see: Me and my Merck: Should I keep it?) Johnson and Johnson (NYSE: JNJ) was a quick call during a one-day decline of $30+ billion (absolutely silly) related to a problem with a plant in Puerto Rico under government investigation that made the market mistakenly view J&J as another Enron or Worldcom for the day.
It also worked with Petro-China Company Ltd. (ADR) (NYSE: PTR), months before Warren Buffett let it be known that he had invested $1.3 billion in the company. PTR (ADR) was mentioned in a story in Barron's that created the "hmm" moment. Upon further investigation I found a stock that was the leading oil company in China (huge moat), that traded at close to book value, with a P/E less than half the S&P average. It had cash, a 5-1/2% yield, was 30% government owned (practically fixed to win) and demand for oil was skyrocketing. Now I was in awe; now my eyebrows were raised as I exclaimed WOW!
In reviewing our current list of eight blogging stocks; Apple Computer, Inc. (NASDAQ:AAPL), eBay Inc. (NASDAQ:EBAY) General Electric Company (NYSE:GE), Google Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), Time Warner Inc. (NYSE: TWX), Wal-Mart Stores, Inc. (NYSE:WMT), Yahoo ! Inc. (NASDAQ:YHOO), I have occasionally said "hmm," but never "Wow." Actually, I did said say "Wow," a few years ago when I bought some TWX at $12.10, but not since. There are many that think TWX is the best value among the eight now. I agree, but do not think it is a WOW stock.
Disclosure: I own Merck, J&J, Petro-China, Time Warner and Berkshire Hathaway. I have no position in any of the other companies mentioned here, long or short.
Sheldon Liber is the CEO of a small private investment company and the vice president for Design and Research of an Architecture & Planning firm.
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Reader Comments (Page 1 of 1)
9-18-2006 @ 1:25PM
Gary E. Sattler said...
Good day Sheldon,
How can it be that you and I share such a similar anlysis approaches yet we settle into such different conclusions on some key situations? I think I have the answer for you.
I also look for that "wow" keystone but I go a bit beyond what a business shows me in the "here and now". I scan the technical journals for leads on hardware which is forthcoming, paying special attention to the electricians. They have to make things work before they ever come out. I watch the orders for conference room and office space furniture and equipment...gives a good lead in on who is powering up.
What I lean on most though is a twenty five year history in manufacturing, logistics, retail and public service. The world will TELL you where it's going...if you know who to ask.
There was a nice write up on an investment fund left on this blog this past weekend. Ken Kam, I believe, is the founder. Do you think he sits back and waits for corporate announcements to make his decisions? I'd wager not. I think he does similar to me. Get a snap shot of what the corporations are buying and they'll tell you what their plans are. Mr Kam's fund will most probably out perform the rest of the field this year, by a significant margin. I'm thinking he's a "nuts and bolts" type of guy. Not a memo reader.
ooops, sorry, I just got called into work.
Gotta go!
Gary
9-18-2006 @ 3:13PM
Smith said...
Funds often do teamwork with each other to make a rally. Fundamental info is often misleading. The best approach is a combination of FA + TA + Info.
This blog is very nice.
Smith
http://thaistocktips.blogspot.com
9-18-2006 @ 4:47PM
tony said...
can someone recommend a stock that would possibly show a 20-30% increase in next three months?
9-21-2006 @ 7:54AM
bob hustman said...
Sounds like an investor's 'chat room'. Myself, am into 'alternative energy' stocks, which I feel are in the WOW category you speak of. My major holding as of now is Enova Systems (that makes hybrid drive systems for trucks and buses). Enova Systems is now listed on the AMEX as ENA. GLTA, bh...