Investment Opportunity 1
It is truly stunning just how short-term oriented investors are when it comes to stock market investments. You don’t see this type of thinking anywhere but in public equities where very few people are true owners of the underlying businesses.
In the private ownership of businesses, owners/investors act completely different. If they own a factory or a cleaning service business, they know that during some years business is better and during other years, it is worse. But this doesn’t mean that they are going to sell the business to someone else when business is soft and buy it back when things are humming along.
This company that operates in a very cyclical industry of oil and gas exploration services. Over the past 10 years, the company has done nothing but build shareholders’ value. However, because at the present time, the business is in a downward part of the cycle, investors are treating the stock as if it had some kind of disease. Why don’t they ever learn that the up-cycle follows the down-cycle like day follows night?
Investment Opportunity 2
When publicly traded companies are not growing revenues and profits, they are completely ignored by analysts and investors. This is understandable because there is no excitement, and therefore, no easy money to be made. However, just because there is no growth showing up in the financials does not mean that there won’t be any in the future. Growth does not happen out of nothing. Companies grow when they successfully satisfy the needs and wants of their clients by providing them with desirable products or services. People on Wall Street like to forget that, especially when stock prices are going up all the time.
Investment opportunity 2 was ignored by investors for many years. The company even hired a new CEO, but still, nobody cared. However, after two years of hard work, the results of his turnaround plan started to show in the financial results, and investors suddenly got excited and bid up the stock price by 200 percent. Then, the company reported a quarter that was not as good as investors had hoped for, and the turnaround CEO resigned to take another employment opportunity. Consequently, the stock price collapsed almost 50 percent from its high.
Right now, if the company were to be sold to a strategic buyer, investors would more than double their money from the current levels. However, stock market investors are not assigning it a higher valuation because as an independent entity, the company is not worth the price that a strategic buyer would pay, and also, with the CEO leaving, there is uncertainty.
Investment Opportunity 3
In the money management business, you can become an investment legend after having several years of great performance, but then you can go down the toilet if your investment performance suffers.
This is exactly the story of Investment Opportunity 3, and most specifically its founder. From 2000 to 2011, he was the investing legend. His company generated excellent results and everybody wanted to throw money in his direction. Then, came a few years of terrible performance and he wasn’t so such a hero after all.
We see this movie being played out over and over again. But, what is amazing is that very few recognize that this is the same movie with a different actor, and consequently, they can’t ever predict the ending. Well, the ending is always the same – if the investment thesis is sound, it will play out no matter what the others are saying.