“People are always asking me where is the outlook good, but that’s the wrong question. The right question is: ‘Where is the outlook most miserable?'” – Sir John Templeton
You would be a fool to venture into markets left for dead after a prolonged bear market. You would face ridicule and be barred from local social events (garden parties, charity fundraisers) if you discussed assets deemed too politically or socially abhorrent. Your sanity would be questioned if you opined that the day the bombs started to fall was, ‘A good time to invest in the stock-market’.
Fishing in waters that others have neglected, or are too fearful to tread can often bring about a bounty of riches. The more ridiculous an investment sounds to other people, the better the chances that it will yield a profit. After all, if it wasn’t ridiculous there wouldn’t be any value left to capture.
“If people around you try to discourage you from taking a certain course of action, or ridicule your ideas, take that as a positive sign. Sure it can be difficult not to run with the herd, but the truth is that most long-term success stories are written by folk’s who’ve done exactly that.” – Jim Rogers
How do you find asset markets which everyone else has given up on? Well talking about them is probably the best place to start. And if by the end of a 5 minute chat over dinner your work colleague appears to be questioning that promotion, and ‘old friends’ start to make excuses about baby-sitters then you could be onto something.
Three years ago I interviewed fund manager Mike Alkin about his approach to investment. One of the things he told me about were the ‘idea-dinner’s’ he had attended, how group think tends to permeate those in attendance, yet why sticking out from the crowd provides a signal:
I call it the ‘head-bob’ when someone is pitching an idea and everyone at the table is nodding saying that makes sense. Everyone is feeling good about that investment. Well, that’s because everyone knows about it! Who’s not heard about it? What’s my risk-reward? Probably not great as everyone’s heard about it. When you go and pitch an idea and everyone’s like you’re out of your mind that’s when things start to get interesting.
Three years ago Mike and I were discussing uranium. Unloved after a prolonged bear market, sensitive to discuss in the aftermath of the Fukoshima, and more often associated with the plans of Iran’s leaders uranium had…an image problem. Three years later and the share price of many uranium miners have doubled or more. The narrative has changed, and suddenly no longer a threat, uranium offers the potential to help deal with climate change.
Pay attention to what others neglect.
This is post number 2 of a series of 7 articles.
Article number 1 – The Catalyst. Article number 3- Attention to detail separates success from failure