Being Contrarian and Thinking of Buying

I remember my speculative markets professor at Wharton used to say that you can't make money doing the same thing everyone else is doing. That made sense to me, and I've had a contrarian bent ever since.

My friend Howard (happy birthday Howard) likes to buy stocks making all-time highs. It's a tried and true methodology and it works well for him and that approach was the basis for Howard's Wallstrip show.

But I've never been able to get my head around doing the same thing everyone else does. You have to invest in a way that makes sense to you. One of the comments I got on my Google post last week suggested that you can't make money being long in this market, and that this is a time to be making money on the short side. But I've never shorted stocks and I am not going to start now.

When I look at the carnage in the markets (the Dow is down 9% in the past 30 days), I think that I should buy something. And the thing I've got my eye on is Google for all the reasons I outlined in that post. If it gets to $400, and it just might happen with another day like today, I will start buying.

The way I look at it, things are bad out there, particularly for financials and companies with bad balance sheets that are over-leveraged and have near term liquidity needs. You can't buy those stocks in this environment.

But there are plenty of companies out there with stock prices 10-15% lower than they were a month ago where the fundamentals of the business haven't changed. And my gut says it's time to start nibbling at them.

Disclosure: Long GOOG

Comments

[whisperonth...:]

I'm on the same track and starting research now for just exactly the right thing to perk up my portfolio.

2008 Sep 18 08:06 AM

[Silverfox2:]

Fred, with all due respect, you are a very good VC but shouldn't you leave the public investing to a professional? Does your huge expertise in VC necessarily translate directly into public investing? Good luck.

2008 Sep 18 09:10 AM

[irondoor91:]

How do you know the "fundamentals" haven't changed? And just what are the fundamentals, anyway? If the fundamentals haven't changed, what is the rationale for the stocks being down 10-50%

In the aggregate, people aren't stupid. They know what they see, hear and feel. What they are seeing, hearing and feeling is fear about themselves and their security (not necessarily their portfolios). They know something just isn't right out there. And they want no part of it after years of irrationality.

As they act on their feelings, the fundamentals you speak of will then change.

2008 Sep 18 09:37 AM

[The Market ...:]

The rationale for stocks being down 10% - 50% is fear. And that's not rational!
Google at 400 might be a good buy(Good bye house ,good bye boat, good bye car!), if you think they will continue to post continuing growth in sales and eps as they have in the past. But I have to wonder how current conditions will affect online ad spending.I don't think it will be good.

2008 Sep 18 10:56 AM

[The Market ...:]

Just one more thing to add, the more scared you are, the more likely it's time to buy stocks.That works most of the time.

2008 Sep 18 10:58 AM

[ViewFar:]

Maybe you should wait a bit longer, its safer to buy after the bottom has been hit and stocks have started rebounding rather than buy and then watch it go down a lot more...

2008 Sep 18 11:00 AM

[Hydrogen Bob:]

In 20 years of investing, the real money I have made is in buying companies with strong long term fundamentals or indexes during panics like this. The reason I keep 35% in bonds in my portfolio is to have the funds to pick up equities in times like these.

2008 Sep 18 12:30 PM

[wallyjm:]

do your investing in stocks of other countries which do not have our fiat dollar printing press money and are a good solid company.

2008 Sep 18 12:58 PM

[sickofthehype:]

Great advice Wallyjm. By the way, EVERY country has a fiat system, so best of luck with that. The global bandwagon would have been geat several years ago, but the world is following our path unfortunately. When we sneeze, they get sick.

Hydrogen Bob has it right I believe. In times of panic take advantage of proven companies, on sale. Even Buffett's Hathaway is out making deals right now, TODAY.

When boards such as this are 95%+ negative, it means one thing. There's some deals out there.

2008 Sep 18 10:15 PM