Port Wren Capital, LLC
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How is Investing a Lot like Fishing? - Contrarian Investors
Most good fishermen will tell you if you want to catch the best fish you have to use the right bait and pick the right location. And if you think about investing, there are a lot of similarities. To catch a good stock, you have to know what technique to use and where to find it.
The S&P500 is made up of large market capital companies and they are all profitable. Those reason themselves are why the mass majority of people want to buy and own those companies. And that thinking is sound based on its own merits. However, they are already very efficient stocks. Meaning, there are a very large number of analyst already covering them. These numerous analysts have done a good job of projecting their results going forward and communicating that information to the entire investment community. For example, Google (GOOGL) is being covered by 46 analysts; Amazon (AMZN) is covered by 39 and Home Depot (HD) by 31. Thus, there is little guess work for the investor. Now granted, the majority of retail investors like that. But, there is a down side to this thinking. This leaves virtually little to no room for a much of a price spread or variance to which to earn a large profit. For example, for Google’s second quarter of 2016, the EPS estimates were $8.04 vs. the actual EPS of $8.42 giving you only a 0.38 difference.
In contrast, the Russell2000 is made up of small market capital companies most of which do not turn a profit and have more than their fair share of financial ups and downs. These smaller firms tend to have much fewer analysts covering them. For example, Waterstone Financial (WSBF) has absolutely no analyst covering it what so ever. Yet, it hit a new 52-week high on August 18, 2016 reaching a peak of $16.90. More importantly, had you bought it back in September of 2014 for $10.39 you would be looking at a 62% gain today. What most retail investors, the mass majority, don’t realize is these small capital companies may offer more opportunity for a much wider spread that may put much higher returns in their pockets over time.
The outliers, that is the minority of retail investors or contrarian investors on the other hand. Tend to see this location as it were a much better one for finding the best fish. This location is more fruitful of an area to which to cast your bait compared to the S&P500 where everyone goes fishing for the more popular fish. And as most people know, good fisherman won’t disclose their best fishing hole to anyone.
We have disclosed some specific investment opportunities using security analysis research to find undervalued opportunities for our subscribers in our PWC STOCK REPORTSSM membership service. Which included Waterstone Financial (WSBF) with a 62% gain. They have access to our security analysis pointing to specific undervalued companies with above-average return potential over the long-term. To learn more contact us today.
At Port Wren Capital, LLC, we specialize in picking specific undervalued U.S. stocks using fundamental analysis developed by Benjamin Graham using a five step process. We have beaten the S&P500, DJIA and NASDAQ benchmarks since we started 5 years ago on our own investments. Discover the difference for yourself. To learn more contact us today.
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