My son walked in the door last week, home on spring break wearing a newly minted Bryce Harper Phillies jersey, and all I could do was shake my head. Reportedly, Harper's jersey is the biggest seller ever in the first 24 hours, in any sport, so there is quite a buzz. (In fact, my son was making Harper jerseys in the apparel store where he works, which added insult to injury). But being a contrarian applies to more than just investing; I may be one of the few Phillies fans that is not enthused by the Bryce Harper signing ($330 million, 13 years), and my beloved Phillies efforts to "buy" a championship. While Harper's done some great things in his still young career, and he's only 26, expectations for him are in the stratosphere, and we all know what happens when high expectations are not met (especially in Philly, and also within the equity world). That's when overpaying (for a player or a stock) really stings.
Within the equity world, when expectations (in this case, earnings and revenue) are not met, a stock will get hammered. When multiples are especially high, and a stock is priced for perfection and disappoints, the damage can be even worse.
As a value investor, which has contrarian overtones, you will miss out on some potentially big gains when you avoid the high-flyers, the FANGS, etc. You may own them at some point, but likely only when the valuations improve, and if and when the growth crowd moves on. Years ago, I never thought I'd own a name like eBay (EBAY) , but ultimately took a position when it became ridiculously cheap.
Newer investors need to figure out how they're wired. If you like the shiny, flashier companies that are in the news, and you don't care about the traditional fundamental metrics, than you are likely wired for growth. If you are patient, not afraid to buy more mundane names that many others are avoiding, including the dreaded "dog with fleas", enjoy digging into a company in the search for hidden and potentially undervalued assets, and pay attention to the traditional metrics, you are likely wired for value.
Don't get me wrong, there is nothing wrong with either. While I am a dyed in the wool value investor, I acknowledge that growth investors can deliver great returns, and hit home runs that I never will - situations that I avoided because I believed they were too expensive. I'm just not wired that way, I don't understand the methodology, and believe me I realize I have missed many opportunities in the growth realm. Value for me. anyway, is easier to understand and a lot more fun. For others, it is boring, and archaic.
I hope I am wrong about the Harper deal, I hope he does well and earns every penny of that $330 million (which, for comparative purposes is $100 million more than Vera Bradley's (VRA) total enterprise value). Phillies fans, however, unlike value investors, will not be patient.