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The Edmonton Journal
Tuesday, November 12, 2002
Where the smart money is
The inherent problem with writing a book on being a contrarian investor is that if too many people buy into the philosophy, you'll no longer be contrarian.
For Benj Gallander and Ben Stadelmann, known for their Contra Guys newspaper columns and Contra The Heard investment newsletter, that wasn't a concern a few years ago, when tech stocks were turning in double- and triple-digit returns.
"We had the first net loss of subscribers ever when the techs were going crazy," said Gallander.
After losing 17.4 percent on investments in 2000, they had a 64.8 percent gain last year. Now, as Gallander crosses the country with his new book, The Contrarian Investor's 13, he has become a Pied Piper for discouraged investors.
"I think there's going to be more people setting up to invest on their own," says Gallander. "A lot of people have lost their money and they're looking to do something different. During the tech run, they were far more closed to ideas. People are reassessing where the future is."
Gallander describes himself as "a Boxing Week kind of guy," who scavenges the sales racks for bargains, then sets target sell prices.
"Being a contrarian is being willing to buy when there's blood in the streets, trying to cherry pick in the sectors that you are buying, and also realizing you're not always going to be right."
He stays away from blue chip companies, reasoning that they have little room for share price improvement, buying only stocks selling for less than $25 a share.
"You really have to stand the heat for awhile, because you're making investments in areas that other people will not invest, so for awhile you will look stupid.
"What one hopes is that at a certain point in time, the market stock you invest in will start to turn, and when that happens, people jump on your bandwagon and you actually run with the herd. We make most of our money by going with the herd, and then when everybody gets excited you try to hop off the bandwagon before everybody else."
Among the sectors he's investing in now are telcom, airline, high tech and insurance. Geographically, he's putting money into Japan. Some airlines will survive and prosper, and Japan will eventually rebound, he reasons.
Conversely, since nobody asked him about gold two or three years ago, and now everybody is, he's taking it as a sell sign. He also thinks real estate and bonds have had their day, and there will be a selloff of income trusts when dividends evaporate as corporate earnings falter.
He dismisses many long-held investing strategies, such as dollar cost averaging, which he calls "a virtual guarantee of less than average returns." He says a person is better off investing more money when prices are down and less money when prices are up.
Rather than buy-and-hold, he believes in buy-and-monitor, the strategy of buying when a market is undervalued and selling when it's overheated.
He avoids stop-loss selling, namely selling a stock or fund when it drops 10 percent. He opts for "mental stop losses," making sure a stock didn't fall just because the whole sector got hammered.
Most investors do their tax-loss selling in December, dumping stocks with capital losses to offset capital gains. Gallander sells his losing stocks in August or September, before they get beaten down by other tax-loss sellers, and buys them back at reduced prices late in the year.
He does 75 percent of his stock buying in the final two weeks of December.
As for mutual funds, he says they generally perform worse than overall markets due to "loads" and management expense ratios (MERs), the latter averaging 2.2 percent.
"Most people, if they would take some time to learn about investing, would do better managing their own money."
The Contra Guys
Buys & Sells