Little did I know it at the time, but a backyard treasure hunt last week turned out to be a great metaphor for value investing. My son was watching his girlfriend's 10-year-old brother, and to pass some time we headed out back with a metal detector. Knowing that this area had been picked over many times, I did not expect them to find much. So, I threw a huge handful of change into the grass while the young treasure hunter was not looking. Once he excitedly found that small hoard, he continued looking for more.
There were plenty of false positives thereafter: scraps of metal, nails and worthless junk. Just as we started losing our light, the detector started beeping one last time. As I dug into the turf, I could not believe what was lurking in the dirt. It was a copper Sabona bracelet, the type that is worn in an effort to combat arthritis. It had belonged to my grandfather, and after he died in 1994 I began wearing it in his honor. It had been lost for years and was an incredible find in terms of sentimental value
The investment landscape today is much like our backyard. There is not much treasure there. It's been picked over; whatever remains is fairly well-hidden and requires a great deal of patience to uncover. You've just got to work harder and search longer to find value. Like metal detecting, the pursuit of the treasure is fun and the rewards can be great.
Sometimes you can hunt in the same area, over and over, with very different results. I know that I'd been over the ground containing that copper bracelet several times but was previously unsuccessful.
Likewise, I will sometimes return to names that I've owned previously. Some of them I may have given up on in the past, but find reasons to return. A couple recent examples include PICO Holdings (PICO) and CoreCivic (CXW) , which recently changed its name from Corrections Corp. of America.
PICO, which I owned for years due to its land holdings and water rights, ultimately became a lesson in frustration as management made bad decisions and did not take steps to maximize shareholder value. It has been on a nice tear recently as there have been some management changes and asset sales amid growing activist-investor involvement.
CoreCivic, which I owned many years ago, simply became too cheap to ignore when the private corrections industry was thrown for a loop in August after the Bureau of Prisons cancelled a contract and the political environment was squarely against private corrections companies. Shares are up 55% since the election. Admittedly, I did not take a position as an election-related bet; I simply thought the market had overreacted to recent developments, and the stock has recouped some, but certainly not all, of the drubbing it has taken.
The treasure hunting never ends. As fruitless as the pursuit can seem at times, it can be just as rewarding at other times.
