Tuesday, November 11, 2008

The Contrarian Train

If you like this site, you might also like Old School Value. The following article was written by Jae Jun of Old School Value. You can subscribe to his feed here.

At times like these, the current consensus amongst many investors is to find safety in large, predictable cash churning businesses. It also helps that prices have come way down, enough for the small investors to take the opportunity to solidify and anchor their portfolios with these blue chips and make it their permanent holdings. I admit, this is an excellent, fantastic, brilliant, stunning strategy. But... I haven't been following it and don't intend to. Stupid huh?

The point I would like to bring up is this: it feels like there is too much of an emphasis on this of late and people are forgetting about the disciplines and strategies of investing in other smaller opportunities and deep value plays.

Looking around, I see companies that are being sold for less than their assets or even their cash. An example is Perini Corporation (PCR) which had a market cap, until recently, of less than it's pure cash holdings. Obviously, some digging should be done, but this could be just one of the many potential gems once Wall Street overcomes its fear. A blog that looks for such opportunities is Stock Pursuit and is recommended for people like me who go around the SEC with a metal detector.

With the recent course of events, the playing field has certainly changed. It's even trickier to decipher a company's future. Many companies big and small have and will fail but there are also many that will survive. It's also even more important to make sure you know the company, check it has a strong balance sheet and management that is capable and experienced even in downturns, such as K-Tron (KTII).

You've heard it before, an investor creates wealth by seeing and thinking about things others don't. While everyone is clamoring to get on board the Wal-Mart express, don't throw away that SCHN ticket just yet.

Disclosure: The author owns KTII at the time of this post.

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