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Jan 4, 2021

The Value Of Patience

by Benj Gallander
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Benj GallanderAt Contra the Heard Investment Letter (www.contratheheard.com), which I co-founded over 25 years ago with my fellow University of Western Ontario student Ben Stadelmann, our goal has not been to make money super fast; definitely it was to grow our capital, the key being a high percentage return. For the most part we have been very successful, albeit there have been bruises along the way—not counting the forays to find a system to win at the ponies and count cards at blackjack in Vegas.

One of the keys to our method is to concentrate on stocks whose prices have been beaten down, making them unpopular but likely to do a turnaround and regain their lustre. These have been previously successful corporations that have lost their mojo and, we believe, have the ability to increase in value by a minimum of 100 percent. Often the gains sought are much greater than that, but nothing is pie-in-the-sky: all the enterprises have traded at much higher prices in the past.

Worth noting is that before buying, initial sell targets for the investments are chosen. Under certain circumstances we might not religiously stick to it, for example, if the price is hit in December and our preference is to wait until the new year to sell to defer taxes. As a general rule, at least a percentage of what we own is sold around the target price. As you can imagine though, given how the goal is to sell far above the purchase price, this can take years. If the sale is at 400+ above, with a dividend to boot (we love our dividends!), even if it takes a decade or so to get there, the returns are spectacular. Normally though, the time frame is much shorter.

While patience is key when holding a position, it is also key before a purchase is made. Some “investors” simply buy on the say so of friends, a few words from a financial advisor or following the crowd into the hot, hot stocks in the market. Hmm, yes, I frown on those “methodologies”. It is not wrong to garner ideas from these places, but then you should pay attention to that old saw called “due diligence”.

In our case, after a filter is done to find corporations down at least 33 percent in the past year. We spend time analyzing corporations’ financial statements, concentrating on debt ratios and book values amongst other metrics. Management’s abilities and track records are also critical. Plus, I focus on companies that have been listed for 10 years, as this offers corporate history to work from. No new, “exciting” Initial Public Offerings (IPOs) for this lad. Often, even if an IPO has an initial increase in value, the price will quickly fade.

Engaging in due diligence means that once a stock passes our preliminary search criteria, it is not acquired for at least six months, perhaps not for years as we become better acquainted with the outfit. Placidity indeed.

Thus, at Contra the Heard, we are not glued to our cell phones. In fact, my Nokia, given to me at 7-11 with the purchase of $25 in minutes, rarely escapes the glove compartment of my car. Thus, my conversations with people are not constantly tainted by the necessity to regard a screen. There are no knee jerk reactions based on minute by minute updates on our smartphones or computers. Foregoing the push notification train is a conscious decision. Are you calling me a “luddite”? I would not express it that way. Rather, it is a choice to retain a certain level of independence and enjoy the sunshine rather than a reflection off a screen.

That also allows for a level of objectivity that you cannot have when constantly inundated with the “truths” of technology. In fact, I find that more and more after reading (which I do extensively) I shut my eyes to think and analyze. OK, you caught me— sometimes that does lead to a nap but heck, my subconscious can also contribute. Real gems do appear that might apply to investing or simply to this game of life. Epiphanies you might say, even if you use the word a little loosely.

One recent example of our patient system in play was VOXX International. This Orlando-based company is an electronic manufacturer and distributor for automotive and consumer products. Founded in 1960, it has a rich history. I purchased it four years ago at $2.56 and though the stock price had one brief flight in 2017 when it touched north of $8.50, it did not stretch to the initial sell target of $9.24.

Then the stock price cascaded downwards, touching $2.85 in the March sell-off. However, it then started a swift climb leading to a sale of part of the position in October at the target price. A day later the rest was dispensed with at $9.39. Ultimately an extremely healthy return indeed. Patience paid. It is investments like these that have led to our 10-Year annualized return of 18.4 percent.

Yes, slowing down and allowing time to think, using patience as a “weapon” and guide can be exceedingly valuable. There is a great documentary called “The Social Dilemma” about how social media attempts to draw people in. It is worth watching to see how our liberty is being sucked away, along with our time.

Fortunately for the majority of MoneySaver readers, a more elderly demographic, there is the time and ability go kick back and practice patience. Ultimately it can lead to a better life and higher investment returns. Try it.

Benj Gallander, MBA, Co-editor of “Contra the Heard”, Toronto, ON (416) 354-2458, gall@pathcom.com, www.contratheheard.com