The Contrarian Plays That Bag the Biggest Gains
Issue #2172
- WEALTHY: Why you should invest "unprofessionally" (Andrew Gordon)
- HEALTHY: One more reason to indulge in dark chocolate (Kelley Herring)
- WISE: An Italian proverb to apply to your investment strategy
ALSO IN THIS ISSUE:
- 4 steps to increasing your sales (Michael Masterson)
- 3 ways to make your website more appealing (Bob Bly)
- It’s Fun to Know… about monkey baby talk
- Add "garrulous" to your vocabulary
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When would you stop going there?
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It’s often said, “The Stock Market is just a big casino”. And it’s true. But the important omission in that statement (to keep the masses out!) is the dealer in this casino tips his hand to the select few… the insiders.
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"He that makes himself a sheep shall be eaten by a wolf."
Italian Proverb
The Contrarian Plays That Bag the Biggest Gains
The market punishes slowpokes and sheep, and that’s why the last thing you should do is invest like the pros. The difference between going with or against the pros is the difference between trailing in their path and picking up the crumbs, or forging your own trail and picking off the ripe fruit that nobody else has gotten to yet.
If you want to make good money, you need to invest "unprofessionally."
You see, the pro game is predicated on speed. And there’s no way you can match it. It’s like wishing you could hit as well as Alex Rodriguez. Well, if you had his bat speed, you could. But you don’t, do you? And you don’t have the speedy software the pros have to pull the trigger. You’re never going to catch up to their fastball, and you’ll only strike out trying.
And human nature does us no favors. It encourages us to participate in a good thing - and when it turns ugly, we’re out of there. So we tend to climb on board just before the market peaks and get out only after it falls. Recent studies have shown that both fund managers and fund purchasers are guilty of this kind of terrible timing when it comes to getting in and out of the market. That’s the other big reason to invest "unprofessionally."
If you want to escape this vicious cycle, one thing you could do is deliberately choose fundamentally sound companies that most investors dismiss because their profitability has either slowed or not kept up with faster-growing companies. Because investors are ignoring these companies, their shares come cheap… sometimes dirt cheap.
This contrarian play is so popular that there’s a name for it: value investing. If you’re a regular reader of ETR, you’ve probably heard of it. Value investing has a long and respected pedigree stemming from the publication in 1949 of The Intelligent Investor by Benjamin Graham, the father of value investing. Dozens of studies have shown that value investing really works. It’s a great way - but not the only way - to escape from doing what the herd is doing.
There are other ways to mix it up. I like looking at metrics besides growth and value when choosing stocks. For example, my eyes light up when I see certain metric pairs, such as these:
- A PEG (price/earnings to growth) ratio of less than 0.8 and weak analyst recommendations.
You can get this combination in weak or cyclical sectors or in sectors before they rebound. Why 0.8? Most investors use 1.0 as their cutoff. I like to tweak conventional thinking. It keeps me that much further away from the crowd.
- Strong cash flow growth and low institutional ownership.
As far as I’m concerned, cash is king. Cash is real. A company that can grow its cash faster than its competitors gets my attention. The institutional investors catch on to these companies eventually, and when they do the share prices go up in a hurry.
- Insider buying and weak stock growth.
Top-level executives who put up their own money are privy to all kinds of sensitive information that never sees the light of day. If they’re buying, it’s usually for a good reason. Insider buying gives you advanced notice of better days, and weak stock growth has been keeping share prices low.
Nice combinations.
Search engines allow you to search for companies using just half of these paired metrics. The other half is very easy to find once you’ve looked up a company on a major financial website. Remember, doing this is the first step - not the last - in evaluating a company. But looking for these pairings can point you to companies that have escaped the adulation of the investing crowd. And that, my friend, makes you a contrarian with the chops to find ripe low-hanging fruit on your own.
[Ed. Note: Andrew Gordon, ETR's Investment Director, author of nearly a dozen books on energy markets, global countertrade practices, and the hot growth sectors of China and Russia, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]
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Dear Michael Masterson: "I need to double my sales just to break even."
"I have been an ETR reader for a while, and have purchased a few products from you.
"I desperately need to push my small travel company up several notches. We have fallen into a downward financial spiral over the last few years, even though we are slowly increasing our sales.
"We specialize in ski vacations to the western U.S. and Canada. Now we are only averaging about $800k in gross sales with about a 15 percent margin before expenses, etc. Problem is, I need to at least double that just to start breaking even. I’ve been sinking my own money and credit lines into this company for the past eight years, and I am at the end of that rope.
"I know you are a very high dollar consultant and are focusing on info-marketing right now, but I am seeing if there is anything that you may be able to assist me with and or point me in the right direction. Ski season is already starting as far as reservations, so I need something that can happen quickly!"
- A. B.
Dear A. B.,
I wish you had written to me eight years ago - because the solution to your troubles isn’t likely to be an immediate one.
First, the travel business is tough. Competition is fierce, forcing margins down. Getting 15 percent as you do is already an accomplishment. If you were starting out today, I’d encourage you to consider a different market.
That said, there are some things you can do to increase your sales.
- You can accomplish your ultimate goal to increase profits by increasing margins. Establish a USP (unique selling proposition) for your services so you can charge more than your competitors.
- You won’t be able to attract many new customers at high margins. That is mostly a back-end game. To make the back end work, you have to do two things. First, provide a truly unique and wonderful experience for your customers. This normally takes years to accomplish through the process of "incremental augmentation" - slowly but steadily improving it. In your case, with your experience, you should be able to accelerate that progress by taking risks and making aggressive decisions. Second, you have to constantly communicate with your past customers. Use a friendly e-mail newsletter for that. Send it out once or twice a month, and more frequently as ski booking season approaches.
- Your immediate goal is to double your sales. To do that, you have to double the time and money you are currently spending on marketing. Figure out exactly what that expense is. Then figure out if you are willing to make the investment.
- Contact a list broker to get the names/phone numbers of skiers who have responded to direct-marketing offers in the past, and call them on the phone. Make an irresistible offer. Call up 100 travel agencies that specialize in ski vacations and speak to the CEOs. Figure out how you can partner up. When you run into agencies that are doing little or nothing with their customer lists, talk them into letting you market to those customers, and reward them with most, or even all, of the first-year profits.
You are what I call a Stage One entrepreneurial business. As such, you have to spend 80 percent of your time and energy on sales. I can’t tell you what specific sales campaign will work for you - but I can tell you that you have to keep at it until you find the answer for yourself.
- Michael Masterson
[Ed. Note: Michael Masterson is one of the core contributors behind ETR's new Internet business-building program. If you're interested in profiting from all the benefits of starting an online business, click here to join our priority notification list.]
What Do Your Website Visitors Really Want?
By Bob Bly
How can you make your website more attractive to Internet users? According to a study by Forrester Research, the top three things website visitors look for are:
- High-quality information: Content is the biggest influence on a visitor’s decision to return to a website.
- Ease of use: The site architecture should be simple and intuitive.
- Quick to download: Users don’t tolerate lag time. They get frustrated if they have to wait more than a second for a page to download, and they abandon it after five seconds.
(Source: Internet Marketing Report)
[Ed. Note: Master copywriter and best-selling author Bob Bly is the editor of ETR's ETR's Direct Marketing Masters Edition. a program to help you start your own successful direct-mail business. Sign up for Bob's free monthly e-zine, The Direct Response Letter, and get more than $100 in free bonuses.]
A Sweet Way to Lower Blood Pressure
Great news for chocoholics: Dark chocolate, a good source of powerful antioxidant phenols, has recently been found to help reduce blood pressure.
A study published in the Journal of the American Medical Association included six men and seven women ages 55-64 with mildly high blood pressure. Every day for two weeks, participants ate a 100-gram piece of dark chocolate. They balanced its hefty 480 calories by not eating other foods similar in nutrients and calories. Half of the participants got dark chocolate, while half got white chocolate.
At the end of the study, those who ate dark chocolate saw a significant drop in blood pressure (by an average of five points for systolic and two points for diastolic blood pressure). Those who ate white chocolate experienced no benefit.
To enjoy the health benefits and delicious flavor of dark chocolate, you don’t need to eat a 480-calorie candy bar. In fact, one tablespoon of unsweetened dark cocoa has a mere 80 calories, with all the benefits. So mix it into your coffee or whirl into a smoothie to help keep your blood pressure in a healthy range.
[Ed. Note: Kelley Herring is the founder and CEO of Healing Gourmet (www.healinggourmet.com), a multimedia company that educates the public on how foods promote health and protect against disease, and is editor-in-chief of the Healing Gourmet book series, including Eat to Fight Cancer. You can learn more about how simple lifestyle choices can improve your health by reading ETR's free natural health e-letter.]
It’s Fun to Know: Monkey Baby Talk
Baby talk isn’t just for human parents. According to a study by University of Chicago researchers, female rhesus monkeys in Puerto Rico use distinct sounds to communicate with their infants. The scientists have identified several sounds, as well as behaviors such as tail swinging, that the monkeys use only with their babies. The noises match the raised pitch and sing-song style of baby talk used by people around the world, but so far the researchers have not been able to translate any of them.
(Source: National Geographic)
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Word to the Wise: Garrulous
"Garrulous" (GARE-uh-lus) - from the Latin for "to chatter" - means talking a lot, especially about trivial things.
Example (as used by Mark Twain in an article titled "Some Rambling Notes of an Idle Excursion II" in The Atlantic): "He took a great liking to this Rev. Mr. Peters, and talked with him a great deal: told him yarns, gave him toothsome scraps of personal history, and wove a glittering streak of profanity through his garrulous fabric that was refreshing to a spirit weary of the dull neutralities of undecorated speech."
[Ed. Note: Become a more persuasive writer and speaker ... build your self-confidence and intellect ... increase your attractiveness to others ... just by spending 10 VERY enjoyable minutes a day with ETR's new Words to the Wise CD Library.]
Michael Masterson
Copyright ETR, LLC, 2007
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