Tuesday, November 4, 2008

All Aboard, The Contrarian Train

Everyone, and I mean the whole world, knows that we are in a recession with more difficult times ahead. If history is any indication, we are going to be in this for a while. Portfolio's are crying bloody murder. Heads are being chopped. Investment banking models have crumbled. People are fleeing, in the midst of taking a bath.

The current consensus amongst many investors is to find safety in large, predictable cash churning businesses. It also helps that prices have come way down, enough for the small investors to take the opportunity to solidfy and anchor their portfolios with these blue chips and make it their permanent holdings. I admit, this is an excellent, fantastic, brilliant, stunning strategy. But... I haven't been following it and don't intend to. Stupid huh?

The point I would like to bring up is this: it feels like there is too much of an emphasis on this of late and people are forgetting about the disciplines and strategies of investing in other smaller opportunities and deep value plays.

Looking around, I see companies that are being sold for less than their assets or even their cash. An example is Perini Corporation (PCR) which had a market cap, until recently, of less than it's pure cash holding. Obviously, some digging should be done, but this could be just one of the many potential gems once Wall Street overcomes its fear. A blog that looks for such opportunities is Stock Pursuit and is recommended for people like me who go around the SEC with a metal detector.

With the recent course of events, the playing field has certainly changed. It's even trickier to decipher the companies future. Many companies big and small have and will fail but there are also many that will survive. It's also even more important to make sure you know the company, check it has a strong balance sheet and management that is capable and experienced even in downturns, such as K-Tron (KTII).

You've heard it before, an investor creates wealth by seeing and thinking about things others don't. While everyone is clamoring to get on board the Wal-Mart express, don't throw away that SCHN ticket just yet.

Disclosure: The author only owns KTII at the time of this post.

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2 comments:

  1. Great post Jae,

    As a value investor I continue to see value in these markets. Not as much as there was only a short week ago, but certainly valuations are attractive for a long-term investor. I don't let all the fear & turmoil affect me other than looking to catch good deals!

    ReplyDelete
  2. I agree. I've missed the best prices of a handful of companies that have been on my buy list all year because I didnt have the cash ready.

    They are at good prices, but not good enough to provide enough of a margin of safety.

    ReplyDelete

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