• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Uncertainty Is Your Friend

You can earn more by buying in times of uncertainty than during rallies.
By TIM MELVIN Jul 03, 2014 | 11:30 AM EDT
Stocks quotes in this article: PAAS, CDE, HERO, SFY

One of the best parts of writing here on Real Money is all the people I have met as a result. I have gotten emails from and developed friendships with some pretty interesting people. I have met fellow value investors as well as newer investors looking for guidance, experienced fund managers and even a few traders and growth types and enjoy regular correspondence with them. I Iove talking all things markets, books and baseball with readers and look forward to hearing form more of you in the future.

One of the more interesting and informative people I have met is a fund manager from California by the name of Pope Brar. I talked with him earlier this year and he was kind enough to share his investment checklists with us. We caught up again yesterday for a conversation about investing and markets.

We talked about the markets emphasis on, and overpricing of, certainty. There has been a lot of talk in recent months about low volatility strategies and how they beat the market by relying on predictable results from the top blue chip companies. I am not sure that low volatility is so much a strategy as it is a condition, and the performance of this approach will change dramatically when we see the markets endure an extended period of high volatility. That has not happened in some time, and people have become very complacent about risk in recent years.

Pope looks at things in exactly the opposite manner. He looks for what he calls low-risk, high-uncertainty situations in which to invest. He told me during our call:  "we believe the investment business is set up in the wrong way. It is commonly believed that one must assume high risk to achieve greater returns. Successful investors do everything to avoid risk. A majority of their success is built on making a few low-risk bets with high-return possibilities. To minimize risk, we look for investments with a large margin of safety, but ones that may be undergoing short-term uncertainty. The market vehemently dislikes uncertainty and at times provides glaring bargains, despite a favorable long term outlook. We look forward to discussing how investors can take advantage of this opportunity."

I thought about that for a while and he is exactly right. Although I came to the sector through valuation alone, my recent forays into the silver mining markets is a perfect example of a high-uncertainty, low-risk situation. The stocks we bought, like Pan American Silver (PAAS) and Coeur Mines (CDE) were trading at a fraction of book value with low debt to equity ratios and high current ratios. There simply is not a lot of balance sheet risk.

In the near term, I have no idea what the metal markets will do. I do have a very high degree of certainty that at some point in the next few years we are likely to see a strong rally that lifts the metals and the stock of companies that mine them a lot higher. I have no clue if the rally will be caused by inflation, geopolitical unrest or just improving economicconditions that will lift the prices higher. I am just pretty sure it will happen. And when it does, I will be able to sell mining shares for several times what I paid for them.

We can apply the same logic to some other sectors as well. I have no idea when our domestic energy policy will turn towards natural gas and lift the demand for this clean, abundant fuel source. I am pretty certain that we will, sometime in the next decade. I am pretty sure we will relax export restrictions as well. When that happens, some of the safe and oil and gas stocks I own like Hercules Offshore (HERO) and Swift Energy (SFY) should appreciate substantially.

Mr. Brar also said something that is similar to what I have been preaching for years. He told me: "one of the intelligent ways to generate returns is to be a practitioner of patience who goes about leisurely tasks, but when the world becomes severely uncertain, pulls out the tools and goes to work."

That sounds a lot like my old friend Mr. Womack the pig farmer or John Templeton and his suggestion to buy at the point of maximum pessimism. You can earn much higher returns looking for safe and cheap stocks in depressed markets and sectors than you can trying to trade the short- term movements or buying high-priced stocks after an extended rally.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Tim Melvin was long HERO, SFY, PAAS and CDE. 

TAGS: Investing | U.S. Equity | Stocks

More from Investing

The 10 Personality Traits of Successful Traders and Investors

James "Rev Shark" DePorre
Jun 25, 2022 10:00 AM EDT

Superior market players share these characteristics in their emotional makeup.

Does the Big Bounce Mean More to Come? Let's See What Drove the Move

James "Rev Shark" DePorre
Jun 24, 2022 4:42 PM EDT

Much of the rally can be attributed to structural reasons, not fundamentals, technicals, or even macro ones.

MongoDB Is Poised for a Rally

Bruce Kamich
Jun 24, 2022 2:15 PM EDT

Here's our initial upside price target for MDB which provides a general purpose database platform.

See That Down the Road? It's the Big 'Green' Bubble, Ready to Pop

Jim Collins
Jun 24, 2022 1:30 PM EDT

Environmental, social, and corporate governance has created a monster and gullible investors should hit the brakes on their EVs and run from the Washington technocrats while they have the chance.

Treat Becton, Dickinson and Company With Care

Bruce Kamich
Jun 24, 2022 1:25 PM EDT

BDX gets an upgrade, but are the charts healthy enough to recommend?

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • 12:08 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    As a Portfolio Name Agrees to a Merger, Here's Our...
  • 10:44 AM EDT PAUL PRICE

    My Very Best Pick for the Next 12 Months

    American Woodmark . It rarely gets better than th...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login