What Investors Can Learn From the Recent Celebrity Outbursts
by Marc Lichtenfeld, Advisory Panelist
Friday, September 18, 2009: Issue #1096
There seems to be a breakdown in decorum lately. A few very public examples:
- Congressman Joe Wilson (R-SC) yells out, “You lie!” at President Barack Obama while he’s addressing Congress about his healthcare reform plan.
- Tennis star Serena Williams threatens to shove a “bleeping” ball down the “bleeping” throat of a tennis official when a call went against her.
- Rapper Kanye West rips the microphone out of a 19-year-old award winner’s hands and proceeds to tell the audience that someone else was more deserving.
Moronic behavior, for sure. And of course, all three have issued apologies. But if you believe that there’s no such thing as negative press, all three have grabbed some free publicity. Wilson received over $1 million in campaign contributions after his outburst.
But what do these situations have to do with investing?
Investing Lessons Learned From Loudmouths
All three of these loudmouths have come under heavy criticism for their outbursts – and rightly so. And while the media whips itself into a frenzy over the stories, we can actually learn investing lessons from them…
- Joe Wilson: President Barack Obama is essentially America’s CEO. In the same way as it’s his mandate to run the country efficiently, corporate CEOs are charged with running their companies and making their share prices rise.
I’ve been on the other end of phone calls when a CEO told me that my earnings or sales estimates were too high. Not because they couldn’t match them (often they were very close to the company’s real internal estimates), but because they wanted to beat them.
Many analysts tend to follow CEOs like sheep. They fail to uncover or expose any flaws in their arguments, for fear of hurting the CEO’s feelings and costing their company investment banking business.
The lesson: Read between the lines when CEOs speak. And if you feel they’re fudging or waffling, don’t be afraid to call them out (although not in a Joe Wilson-type of way). Remember, it’s your money on the line, so if you don’t agree with what you’re hearing, let your cash do the talking and put it somewhere else.
- Serena Williams: While I don’t condone shoving “bleeping” tennis balls down anyone’s “bleeping” throat (unless it’s Joe Wilson’s or Kanye West’s), some situations call for aggressive action.
The lesson: There is such a thing as analysis paralysis. Do your homework and be thorough, but don’t sit on your hands and go through all the “what if” scenarios for too long. Be proactive. And when the opportunity exists, grab some profits.
- Kanye West: Whether his opinion was right or wrong doesn’t matter. The point here is to recognize who might be more deserving of your investment dollars.
The lesson: Just because analysts and other investors think a stock is the greatest thing since spray-on hair doesn’t mean it is. Invest in companies that you know are better poised for success, no matter what anyone else says.
The latter point speaks to a crucial philosophy that I’ve cultivated over the years…
The Value of Being a Contrarian Investor
Having been trained by two of the best “against the grain” analysts, I can’t say enough about how important it is to be a contrarian investor.
You’re not in the markets to follow the crowd, make anyone happy, or do anyone a favor. You’re in it to make money. Period. If you want to be nice, buy someone a gift with your profits, donate it, lend it, etc. But the goal of investing should be to make money… plain and simple.
And history has repeatedly shown that you stand a better chance of claiming the biggest profits when you have the courage to steer away from the masses and go for the lesser-known names. Companies that nobody is talking about, but are stacked with potential anyway.
I’ve built my career on these principals. I take the words of CEOs with hefty grains of salt, rarely listen to analysts, do my own research. And when there’s an opportunity for profits in the market, I grab it.
Fact is, I’m not the only one. At Investment U, we have several analysts who aren’t afraid to go it alone. For example…
- This summer, as the masses were still falling over themselves to buy Chinese stocks, Lou Basenese suggested going short. That was right before the Shanghai Index fell off a cliff.
- At the height of the financial panic last February, when people were fleeing from the market and stocking up on guns and canned goods instead, Karim Rahemtulla recommended buying stocks. The markets are up huge since then.
Both strategies have proved successful – even as some wondered what the heck they were thinking (and told them so!). Bottom line, if you want to bag the best profits, it pays to be contrarian.
Good investing,
Marc Lichtenfeld
The Investment U News Tracker:
- American Airlines Cashes in Its Air Miles:
In the midst of the worst downturn to hit the airline industry, AMR Corp (NYSE: AMR), parent company of American Airlines, is cashing in its air miles.
No, it’s not using them for a blowout around-the-world jaunt… it’s raising critical funds to help it weather the ongoing storm. AMR shares shot up by 18% on the news that the firm has raised $2.9 billion in new capital. The company said that $1 billion came from selling its advanced sales of frequent flyer miles to Citigroup (NYSE: C). Good news if you use a Citigroup credit card with air miles rewards.
American could use some of the money to fund an increase in capacity at some U.S. airports, as well as for potentially buying a slice of struggling Japan Airlines.
- Break Out the Real Estate Cheerleaders… Again:
This news got the real-estate cheerleaders waving their pom-poms around frantically. The Commerce Department announced this morning that construction of new homes climbed by 1.5% in August – the fastest rate since November 2008. Driving the gain was a 25% surge in multiple-family homes (like apartment buildings).
Of course, the media wheeled out a procession of economists, keen to boldly declare that this news means the U.S. economy is out of recession and on the road to recovery.
Back the diggers up, boys. The multiple-family area suffered a 15.2% plunge in July, so a rebound wasn’t entirely unexpected. In addition, construction of large single-family homes dropped for the first time in six months. And Paul Dales, economist at Capital Economics, notes that housing starts are still 74% below their 2006 peak. Besides, the excess inventory of unsold homes and those in foreclosure is still a major obstacle to a full recovery.
We’ve written in detail on the current state of the U.S. real estate market recently. Check out our articles on why you should be suspicious of the headline figures, why the market isn’t rebounding, and why housing prices will continue to drop.
Any investment contains risk. Please see our disclaimer.
3 Responses to “What Investors Can Learn From the Recent Celebrity Outburst”
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Marc is a senior analyst at Investment U. His investment career started out at the trading desk of Carlin Equities in San Francisco, CA, where he executed dozens of trades each day for his clients.
While I am a contrarian and as a former stockbroker, I know too well the way the brokerage house analysts work, I don’t think you can compare those who don’t do their homework (Mr. Wilson), those who use profanity to argue a point (Ms. Williams), or those who humiliate a 19 year old just because they are famous (Mr. West) to those who do their homework, humbly disagree, or do not make anyone else feel stupid or inferior. Though if you want to hear disagreement, you will hear it from me: your comparison was stupid. Sorry, but I will not use profanity.
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In regard to Joe Wilson, I read somewhere that some Democrats did the same thing to former President Bush. Perhaps Wilson was just following along with what the liberals do – Alinsky’s actions?
Would you check on that?
Thanks.
Roger Davis
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Gentlemen/Ladies,
Your articles were well written and easy to understand, even for the novice investor such as myself. My funds are limited at present, but I feel strangely empowered after reading your newsletter. With information like this and a team to help with problem questions, how could I not accept your offer!
This is going to be a most worthwhile learning relationship!
Many Thanks
VPatton
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