Today I’m pleased to bring you a new installment in our Dick Davis Contributors Interview series. This week I’m talking to Benj Gallander, who is the co-editor, with Ben Stadelmann, of Contra the Heard. Read our conversation below for Benj’s advice on staying contrarian and some of his favorite stocks to buy today.
Chloe Lutts: Hi Benj, thanks for talking to me today. To start, tell me, when did you and Ben start publishing Contra the Heard? And why?
Benj Gallander: We started 18 years ago. Both Ben and I had tremendous success investing for a long time and we thought that we could apply our knowledge and help other investors, while starting a business at the same time. There was a real void in the investment letter field for an independent voice from a contrarian perspective, so this gave us a chance to fill that gap.
CL: What’s your investing system or philosophy?
BG: As I outlined in my best-selling book, The Contrarian Investor’s 13, we do have a number of philosophies that we live by when investing. And over the years, those have been tweaked to achieve better results. Some of these include not investing in a stock that hasn’t been around for at least 10 years. This gives me a track record to see how the company has done historically. Since I am buying out-of-favour corporations, I want to have an idea that they can return to form. It also helps me to set an Initial Sell Target for the stock. Normally I sell at least 50% at this price, sometimes the whole thing. I am also always looking for home runs or grand slams with my stocks, choosing to buy positions that I feel can go up a minimum of 100%. Every one of the stocks that I buy will have already traded above this percentage.
CL: What else do you look for in the stocks you recommend in the newsletter?
BG: One of the primary focuses is debt. I avoid companies like the plague that have increasing debt levels unless the benefit is crystal clear. What I delight in seeing is nominal or zero debt. Plus, when a sector has been battered, I find that cherry picking in that arena can often lead to outsized returns. The financial sector has been ripe for the picking the past few years although the bargains now are fewer and further between.
CL: Based on those criteria, what’s one of your favorite stocks to buy today, from the financial sector or elsewhere?
BG: I’ll go a bit further. About two-thirds of the portfolio that I manage is in the United States with around one third Canadian. Two favourites in the U.S. are the behemoth Bank of America (BAC) and a much smaller financial, Bank of Commerce Holdings (BOCH). In Canada, ATS Automation (ATS) is a fave.
CL: You’ve been investing for over 30 years: has it gotten harder to be a contrarian as market chatter has become a 24/7 deluge? Do you have any techniques for staying contrarian?
BG: Over 35 years actually. Hard to believe since I feel like such a young pup most of the time. The thrashing of 2008, where we also got beaten badly and lost just north of 36%, made me more disciplined than ever, I feel. That in turn made me more contrarian. I believe that is why the portfolio that I manage has done so well since and the 15.3% annualized return over the past 15 years encourages me to stick to my knitting.
Another key is that I do my best to avoid the noise in the market. Given what I do, I am one of the least connected people I know. No blackberry or iPhone and perhaps I have used my cell phone 20 minutes in the past year. Given that in a normal year I don’t make more than a dozen trades, it is not necessary for me to be connected. And history shows that active traders do not do as well as we more patient types.
I’d argue that it is somewhat easier to be a contrarian for me. But due to all the chatter out there 24/7, people are less likely to think independently today and therefore it is likely harder for most.
CL: Do you have any advice for investors who have a harder time staying contrarian?
BG: Avoid the “herd” mentality. When things are really exciting, it likely means that the party is getting close to a finish. The real gains are made in the stocks that are being ignored but have good fundamentals.
CL: What do you see as the biggest challenge in the market right now?
BG: In terms of the market specifically, it is the number of wild cards out there. An obvious one is the European difficulties. But the United States is in a horrible position financially and one has to question whether there is the political will to right the vessel.
CL: Let us get to know you better — what else do you like to do besides investing?
BG: One of the things that I love to do is public speaking. I’ll be in Chicago in September yakking it up, and then have a couple of speeches scheduled in Toronto. I also do a lot of writing. That includes The Contra Guys column with Ben for Canada’s national newspaper, The Globe and Mail. And 22 years ago, Ben and I joined three friends to start the SummerWorks Theatre Festival, which I believe is the largest juried festival in North America. In addition, six of my plays have seen the stage. I play lots of sports, albeit more slowly than I used to. And spend lots of time with people who call me “Dad.”
CL: Sounds like a full life! Anything else you’d like to add before you go?
BG: I think I’ll use a quote from that old Wall Street character who made and lost millions of dollars a number of times, Jesse Livermore. He said, “Throughout all my years of investing, I’ve found that the big money was never made in the buying and the selling. The big money was made in the waiting.” Our average hold time is about three and a half years, which would drive a lot of people crazy. Of course, at the end of the day, it is the percentage return that counts.
CL: Good food for thought. Thank Benj!
Wishing you success in your investing and beyond,
Chloe Lutts
Editor of Investment of the Week
