• 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
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • 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
  3. / Consumer Discretionary

The Value of Ignoring the Crowd

Stocks that had fallen out of favor have come back in this portfolio.
By SHAM GAD Sep 06, 2016 | 03:00 PM EDT
Stocks quotes in this article: IBM, GOOGL, AA, TOWN, SN, GM

For the first eight months of 2016, our Winning Value Portfolio continues to disprove many market myths that are often viewed as truisms, including:

  1. To be properly diversified, a portfolio has to hold dozens of stocks. It is our view that 10 to 20 securities provide all the diversification one needs.
  2. Buying cheap, out-of-favor or misunderstood businesses is the most effective way to outperform the overall stock market.
  3. Patience creates a twofold advantage: elimination of trading expenses and a disregard for volatility, both of which do most investors more harm than good.

For the eight months ended Aug. 31, our Value Portfolio was up 15.9% compared with 6.6% and 0.6% for the S&P 500 and Wilshire 5000 indices, respectively.

If you look at our 10 securities, not a single one was considered a stock with a favorable or strong outlook, according to analysts. IBM (IBM) was considered lost in the era of Google (GOOGL) . Dinosaurs like Alcoa (AA) were considered relic businesses in the era of mobility and social media. Both are doing better than the S&P 500. And in both cases, value was not in sexy growth but in attractive prices for the underlying assets as well as a spinoff in the case of Alcoa. (Alcoa is part of TheStreet's Action Alerts PLUS portfolio. Google is part of the Trifecta Stocks and Action Alerts PLUS portfolios.) 

Banks are not considered market favorites today, but Towne Bank (TOWN) shows that doesn't matter. And our best-performing stock is Sanchez Energy (SN) , arguably the "riskiest" place to invest at the start of 2016. Some might argue that Sanchez is a classic case of "high risk, high return" investing, but we wholeheartedly disagree. An evaluation of Sanchez's financials, cost structure and balance sheet indicated the bargain opportunity, although we acknowledge the speed of the gain was faster than we anticipated. But then again, that is why successful investing requires both a bargain price and patience.

We still believe General Motors (GM) , and the warrants we own, represents one of the great bargains in the market today. My opinion has been tested for a couple of years, but I am not wavering. When the underlying company is trading at 4x earnings and expected to grow profits over the next few years, odds are high that your capital is well preserved while you wait.

And wait we will as the long-term results of our portfolio demonstrate that a simple, rational investment philosophy can beat the market and thus, the vast majority of investment professionals.

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, Gad was long MHGU, GM, WT-B, KIN, LNG, TOWN and SN bonds, although positions may change at any time.

TAGS: Investing | U.S. Equity | Consumer Discretionary | Financial Services | Technology | Stocks

More from Consumer Discretionary

This Deep Value Portfolio Managed to Hold Its Own in 2019

Jonathan Heller
Dec 13, 2019 11:00 AM EST

The 22 stocks in the Double Net Value Portfolio collectively outperformed the value components of the Russell 2000 and Russell Micro indices.

Most Investors Can't Kick About the Markets in 2019

Bret Jensen
Dec 13, 2019 9:30 AM EST

Energy and manufacturing were soft spots, but the rising tide of the indices to all-time highs lifted many boats.

4 More Unloved Stocks Going Into My Latest Tax-Loss Selling Portfolio

Jonathan Heller
Dec 6, 2019 11:00 AM EST

We'll track a dozen beaten-up stocks that could be subject to tax-loss selling at the end of 2019 to see whether they can stage comebacks in 2020.

Ready, Set, Go: Nike Could Break Out to the Upside

Bruce Kamich
Dec 5, 2019 11:09 AM EST

Let's check the charts and technical indicators before we lace up a recommendation.

Sector Geography Lesson, Japan's Stimulus and Zooming In on Zuora: Market Recon

Stephen Guilfoyle
Dec 5, 2019 8:48 AM EST

Plus, the Saudis look to press their oil agenda while Europe prints some ugly economic data.

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

  • 10:10 AM EST BOB LANG

    Banking a Big Winner in SRPT, Rolling Up

    Nov. 20 here on the CC, I mentioned buying some Ma...
  • 10:36 AM EST GARY BERMAN

    Fibocall: How High Can Crude Go?

    On crude: I am looking for higher, but please b...
  • 08:20 AM EST BOB LANG

    Webinar Time - Talkin' Calendars, Butterflys

    join me later today after the market close as we t...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2019 TheStreet, Inc., 14 Wall Street, 15th Fl, NY, NY 10005

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