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Year in Review

2010 in Perspective,
from the January 2011 issue

Shall we begin like a couple of talking heads by making it all about us? Oh, why not. The streak that defied probability has ended. Every year since the genesis of Contra, at least one stock in the portfolio has been taken over by an amorous suitor. In a portfolio that normally possessed between 15 and 25 equities, that was way out of whack.

A bumper crop in 1999 featured six of these beauties, while 1997 and 2001 boasted four each. The period between 2007 and 2009 saw only one each year, so maybe this was a harbinger of a shutout being pitched in 2010. Drat!

Since buyouts generally happen at a lovely premium, they're a fabulous way to grease returns. In 2010, Novell was chased, and though it looks like it will yet be caught, it is only when the money falls into our register that it is counted.

Still, even without the assist of takeovers, it was an excellent year. The President's Portfolio clicked in with a return of 29 percent, which sent the 10-year annualized return to 19.6 and the 15-year to 17.6. Yep, still amongst the best out there.

The debut of the Vice-President's Portfolio was just as auspicious, with a return of 24.9 percent since its inception on January 22, 2010. The heavy lifting was done by the dashing jumps of Wabash at 294 percent, while Material Science elevated 237 percent. Those are the kind of numbers you'd link with Barry Bonds or Roger Clemens, guys who — we bet — will be in the Hall of Fame one day.

Our performance — guaranteed to be devoid of steroids — compared very favourably with the TSX, which rose 14.4 percent, the S&P 500 (up 12.8) and the Dow (plus 11). Globally, the places to be were Sri Lanka, Estonia, the Ukraine and Bangladesh, all up more than 70 percent. Didn't we suggest at one time you should be there? Oh, sorry, that wasn't us.

But pat yourself on the back if, like us, you avoided Cyprus and Bermuda, down worse than 40 percent. The FTSE All-World Index, which attempts to take the temperature of the whole shebang, rose 10.4 percent.

The major stories of the past year ranged from financial blowouts in nations that seemed not so long ago on very firm footing (like the Irish Tiger) to the gold and commodity rush. Gold? Holy Hannah — is that the same metal that was shunted to the sidelines a number of years ago as irrelevant, a historical remnant?

So, how about a few predictions for the next few years? Although many are convinced that commodities will sprint into the distant future, Benj wants to throw his contrarian harpoon into the system. It sure would be fun to plunk down some cash on glittery gold and shiny silver, a trend that outfits like TG-Gold-Super-Markt aim to cash in on.

The company plans to install 500 vending machines that dispense the shimmering stuff for which men moil across Germany, Austria and Switzerland. At a mere 30 percent above market price. The machines will monitor transactions for signs of money laundering, as if those ne'er-do-wells couldn't find a better place to profit.

But Benj subscribes to the proposition of a "natural limit," meaning that only a certain percentage of anyone's assets can be thrown in one direction. The vast majority of the population must put food on the table and pay mortgages and rents before they can seriously ponder other investments. Not to mention the cable and phone bills. So, while some safe deposit boxes may be laden to the brim with all that glitters, this won't become the norm.

Expect the American dollar to lose its place as the globe's reserve currency. The country's inability to rein in its borrowing will spur other nations to decide a currency combo is a must. While the U.S. will bitch and moan that this is all so unfair — as the Coasters' Charlie Brown lamented, "Why's everybody always picking on me?" — the shift will lead to a diminished demand for greenbacks. The country has enough going for it that it will not become a second-class nation, but major social unrest could again become critical if the gap between rich and poor continues to expand.

The European Union's future is fascinating to conjecture. While the alliance will in all likelihood continue, it would come as no surprise to see some countries pull out, while others are kicked out on their furry behinds. A critical problem with this union, besides the obvious one of certain states entering on false pretences and not living up to their commitments, is that some of the countries are so different in their assumptions and behaviour that they are not compatible with a common currency.

Take, for example, Germany and Greece. We are not stating that one is better or worse — you can judge that for yourself — but they are polar opposites economically. Once upon a time, Benj spent a couple of months in each of these countries, and while he would rather vacation in Greece, he'd prefer to put his money in Germany.

Even with all the problems out there, we remain happy to invest in stocks while diversifying in other areas for protection. For, while the recent economic nosedive may have been, to quote the Talking Heads, once in a lifetime, the outlook is far from the same as it ever was.


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