Stay clear of markets now, author advises

Vancouver Sun

By Barbara Aarsteinsen

If you’re confused about interest rates, aghast at the dollar’s freefall and worried sick about the stock market, investment pundit Benjamin Gallander says you’re on the right track.

“There is a time to panic. Of course, it’s better if you reach that point before other people do,” said Gallander, co-publisher of
Contra the Heard, a quarterly newsletter, and author of a new financial guide,
The Uncommon Investor, which is being released this month.

“This is a good time to stay on the sidelines and watch carefully for the next buy period. There’s nothing wrong with taking a pause; at this stage, it may be the best thing to do.”

Gallander is practicing what he preaches. He and his newsletter partner, Ben Stadelmann, who is based in Seattle, recommend only stocks they own in their personal portfolios.

While their publication comes out four times a year, they send out regular email messages to subscribers, including notification of every stock trade they make.

Predicting that the markets still have plenty of room to fall and that recession is inevitable, the pair have only bought three issues this year and they have “cut back dramatically,” Gallander said, in the dollar value of the equity stakes they hold.

“We’ve been pulling our profits out of the market, ” he said. “That’s the lowest acquisition rate in my 20-year history of investing.”

Gallander, in Vancouver to promote his book, said he and his partner will probably be selling more stocks as the year-end approaches, ridding themselves of their “tax-losers.” He said they’ll then scour the market for bargains in December, as other people dump stocks as they adjust their portfolios for year-end, “but we’ll only stick our toe in; we’re not going to be jumping into the market.”

What constitutes a bargain? Gallander, who describes himself as a contrarian, said he looks for “good companies that have been beaten, “undervalued, out-of-favour stocks that have the ability to make big gains at a reasonably fast pace.”

He explained that would-be buy candidates must have the potential to increase in value by a minimum of 50 percent.

He said he looks for companies with low or no debt, that have a track record of a least 10 years and that pay regular dividends. He will only look at issues listed on the Toronto Stock Exchange or the NYSE, because they have stricter regulations.

Gallander said he won’t pay more than $25 a share for any stock and always sets a sell target. When an issue reaches that target prices, he normally unloads about half of his holdings.

Gallander, who is also author of The Canadian Small Business Survival Guide, said he always buys with the long-term in mind, but he’s not an advocate of holding issues for the long-term irrespective of price, riding out fluctuations.

“I don’t believe in the dictum of buying and holding,” he said. “At some point, everything is overvalued.”

The portfolio is generally limited to about 30 stocks; right now; it’s holding at 29 issues. The stakes are all in individual companies because Gallander said he’s not keen on mutual funds, arguing that investors can do just as well investigating companies themselves and buying through discount brokers.

He said he last bought mutual funds in 1994, when we wanted exposure to Latin America and Asia. He sold all those funds a year later.

“Some funds can be good and you can get some expert advice and some good returns, he said. “Most people – if they’d take a little time – could do just as well or better on their own.”

Gallander and his partner list their annual returns on the front page of each issue.

Those returns – 10 percent of which they annually donate to charity – range from a low of 1.5 percent in 1994 to a high of 77.8 percent in 1993. Last year, they achieved 53.2 percent.

The only three stocks that have tempted Gallander this year are Bombay Company Inc., Utah Medical Products Inc. and Denison Mines Ltd.

  • Bombay, a Fort Worth, Tex. Based specialty retailer with 415 stores across the U.S. and Canada, is a “demographic play,” Gallander said.

    Its furniture, prints and accessories have strong baby boomer appeal, he explained. As well, Bombay recently named a new president who he thinks will propel the company forward.

  • Utah Medical, with headquarters in Midvale, Utah, develops and manufactures a broad range of disposable and reusable specialty medical devices.

    Gallander said it also has demographic appeal, given the aging population. “More people are going to need the kinds of products it makes and it’s already a leader in one of its fields.”

  • Toronto-based Denison Mines was more of a “risk play,” and it may be put on the chopping block by year-end, Gallander said, explaining heill probably wait to see the results from an oil project the company has in Greece.

Gallander and Stadelmann’s
Contra the Heard
newsletter costs $250 for the first year. Renewals cost $400 unless you make less than a 12.5 percent return, which entitles a subscriber to the first-year rate.

The subscription list is limited to 1,000, so the partners can handle phone calls and email communications with subscribers. They closed the list this summer, but it’s now reopened for business.

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