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Investments Inc.

This stock-market iconoclast outperforms the pros

Benj Gallander lives and invests against the grain

Benj Gallander - Guru

Contra the Heard Picks
returned 52.3% last year

By Peter Boisseau

If all the world's a stage, then Benj Gallander is one of the stock market's greatest characters.

He so abhors watches he asked his girlfriend to get rid of hers. "I don't want to know the time that badly." He doesn't carry a cell-phone. "I don't want to be that accessible." His dress code is more Main Street than Bay Street. "I like the freedom of being able to wear what I want."

But when your stock picks return over 50% in one year and you still have the good sense to get out before the crash, he figures you've earned the right.

And anyway, the playwright/investor with an MBA and half-dozen theatrical credits fits right in at the artists' co-op where he lives in Toronto. Many of his friends don't know about his life as a financial expert, unless he pops up on the news talking shop.

The jeans and T-shirt approach also fits the proudly contrarian philosophy of Mr. Gallander's books and Contra the Heard investment newsletter, whose subscribers include many brokers and financial analysts.

His latest book, The Uncommon Investor, continues that tradition of going against the grain, while allowing Mr. Gallander to indulge his creative bent with a cast of characters who discuss investing while watching a mythical World Series game between the Toronto Blue Jays and New York Mets.

The book, which hit the stores Tuesday, ridicules old standards such as buy and hold investing, dollar-cost averaging and borrowing to buy on margin. At the same time, he pitches a philosophy he calls "anti-investing".

"The smartest thing a lot of people can do is pay off their credit card debts, and when they have the cash on hand, then look at the stock market. But not before."

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His offbeat ways are not only tolerated, but highly valued by his more buttoned-down peers.
"He has a very different way of doings things, but in this business, that is viewed as a positive," says former classmate Gordon Robertson, now an investment adviser with Nesbitt Burns Inc. in Halifax.

"This is a business where we tend to get caught all doing the same thing at the same time." When others are selling, Mr. Gallander and investment partner Ben Stadelmann are more likely buying. They specialize in finding unpopular stocks poised for a big comeback.

"We buy companies that nobody likes," says Mr. Gallander.

But some of their best moves have been the stocks they didn't buy.

When others dump
losing stocks,
Benj Gallander
jumps in

Undervalued stocks are key to Contra's success

They stated pulling money out of Asia and Latin America well before the October 1997 crash because "things looked too rosy."

As the markets reached record levels this past April, they took most of their profits off the table, reducing their stock holdings to their lowest level in years.

His hybrid background allows him to draw on "the right and left hemispheres of my brain," as he is fond of putting it, while keeping him free of the group-think that can stymie others.

While his Dalhouse University classmates headed off to work in finance and industry, Mr. Gallander''s first job after graduation was a minimum wage job as manager of the international youth hostel in Toronto.

He makes a point of travelling, finding inspiration in unusual places.

Last year it was Costa Rica and Panama to catch an eclipse and learn a little Spanish.

A few years before, it was the Czech Republic, ostensibly to do some business consulting. He ended up teaching English to a group of factory workers and high school students.

In a play called Pseudopod Rejects, Mr. Gallander wrote the media is reshaping people's minds through an ever increasing bombardment of print, TV and online information.

"And that actually goes back to the stock market and how I learned to ignore tiny moves," he says. "When you sit in front of a computer screen for six or eight hours a day, everything starts to take on substance, when in reality, it's just a minor blip."

In his latest play, six people who have committed suicide meet in the after life. The characters include a wealthy stockbroker and a homeless person. "They lived in two completely different worlds, but yet they end up in exactly the same place," says Mr. Gallander, who donates 10% of Contra's profits to charity every year.

The cast of The Suicide Parlor also includes a security guard who lived vicariously through the paintings that were exhibited in the gallery where he worked.

"He would enter into the paintings and almost become what they were. And I think when you're investing in the stock market, you have to almost go inside the market to understand what's happening and try to predict what's going to happen next."

Mr. Gallander is viewed with something approaching awe in some quarters for the savvy moves he and Stadelmann made with their Contra the Heard investments, which have a five-year annualized return of 33.9%.

They bought shares in Mitel Corp. at $3 and sold in April at $19. They picked up Grubb & Ellis Co. on the New York Stock Exchange at $2.55 (US) and sold as high as $16 (US). They got Journey's End Corp stock at a couple of bucks and sold last year for $11.

Not every move works out. Mr. Gallander says he wishes they'd sold more stock before the markets took a dive. He figures they're about breakeven for the year.

Among the Contra investing rules is that they won't buy stock in companies that are less than 10 years old, a hard lesson from an investment Mr. Gallander made in Northland Bank in the mid-80s before it went bankrupt. While the rule cost them some opportunities, it also kept them out of Bre-X.

But risk is still the name of the game. "If you're going to invest along with Benji, you have to pick five or six of his choices, not just one or two, because a couple of them probably won't work out, " says Sean Wagman, a financial planner at Royal Bank of Canada, who subscribes to the newsletter.

"But the bottom line is that overall, his portfolio will outperform anything out there."

Mr. Wagman says he'll never forget the first time he met Gallander after dealing with him over the phone for about six months. Jaws dropped in the posh office where he worked when Mr. Gallander strode in "wearing a torn pair of army surplus pants and a T-shirt," he says.

"It throws you off when you first meet him, I mean, I'm a blue suit, red tie type of person, and when you speak to him without meeting him, that's who you think he is," says Mr. Wagman.

It didn't take him long to get over it." You deal with the individual not because of how he looks, but what he has to say. And what he says counts."

Mr. Gallander says they've only bought three new stocks so far this year, and they don't plan to look for any more until year-end.

"In December, a lot of people dump their losers because they have to get out to offset their gains for tax purposes."

"That's when we'll be jumping in."

The newsletter Contra the Heard is limited to 1,000 subscribers and includes only those stocks Gallander and investment partner Ben Stadelmann have bought themselves.

The newsletter portfolio's annualized returns are 27% over 10 years and 33.9% over five years. Last year, it was 52.3%.

Some rules of Contra investing:

  • Focus on turnaround situations and unpopular stocks likely to regain luster in the near future;

  • Concentrate on debt ratios and book values;

  • Focus on stocks with the ability to increase in value by a minimum of 50%;

  • Only invest in organizations that have existed at least 10 years;

  • Pick takeover targets well before the takeover happens;

  • Appreciate stocks that pay regular dividends;

Gallander lives by the motto: "Money's important, but so is a walk in the woods once in a while."

Copyright Notice: Copyright © 1998 Peter Boisseau Reproduction of this article in whole or in part is prohibited without permission of the author.