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My full interview with Benj Gallander of Contra the Heard originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.
At first glance, you might not classify Benj Gallander as the investor type. His demeanour is too relaxed — in fact, he’s calm, glowing, and happy. He’s got a slight surfer-dude slur, and on the day of our interview he looked a lot like a Toronto hipster, with his ruffled hair, open sandals, and unbuttoned shirt. Perhaps Benj hasn’t changed a whole lot from his university days, during which he claims to have “majored in pinball, racetrack, intramural sports, and cards.” Not, he admits, a model student.
Arguably, that freewheeling nature is what makes Benj unique and has perhaps helped him be so successful in the market. It’s his youthful way of questioning — constantly asking “Why?” — that helps Benj uncover truths and capitalize on inefficiencies in the market. Throughout the interview, you’ll notice that Benj will sometimes ask questions aloud — “Is it a sector that’s potentially dying for some reason, or is it a sector that’s a necessity and will come back?” This is his mind at work. Unlike most of us, Benj’s brain hasn’t settled into a mature, biased, deep grey-matter state. Benj continues to question not only his own beliefs and actions, but those of the market, and the participants in it.
Benj is a contrarian. Contrarians often go against the herd, or against the majority. I say “often” because contrarians who actually beat the market cannot always indiscriminately buy when others sell and sell when others buy. They’d quickly go bust. Successful contrarians such as Benj make moves in the market based on logic rather than sentiment, and are usually proven right more often than they are proven wrong. Benj describes this contrarian approach as “buying good companies that have been beaten up but have the ability to make big gains at a reasonably fast pace.” By investing through a discriminate contrarian framework, Benj can buy low and sell high, and as a result enjoy consistently high returns at Contra the Heard.
It was in 1995 that Benj Gallander co-founded the Contra the Heard investment letter with his friend Ben Stadelmann. Finally, after coasting erratically through university (Western for his BA and Dalhousie for his MBA), globetrotting freely around the world, and working odd jobs here and there, it seemed that Benj had settled into a groove. Thankfully, Benj has stuck it out at his current job as president of Contra the Heard. He’s amazing at it. And he seems to be having so much fun. Through Contra the Heard’s President Portfolio, Benj has achieved a 19% annualized return since 2000, clearly overshooting the market. Benj’s five-year annualized return since 2010 is 28.9%. If in 2000 you had invested $100,000 alongside Benj, and bought all of his stock recommendations, your capital would have grown to $1,358,952.95 over a 15-year period. It should be no surprise that today Contra the Heard investment letter counts some of the most successful business people in Canada among its most loyal readers.
I first came to know of Benj through the television show Market Call on Business News Network, BNN. This was also at the time when I still practised value investing, as derived directly from the concepts that both Benjamin Graham and David Dodd taught, and so I found parallels in Benj’s contrarian framework to that of value investing. I was so intrigued by Benj that I started to email him questions about particular stocks — RIM, Sears Canada, Manulife — to elicit his unique contrarian perspective before making my own moves in the market. Benj was approachable and responded back to me with advice that was bang-on each time.
When I emailed Benj in September of 2011 to ask if he would invest in RIM and if such an investment would fit his contrarian model, Benj replied the next day: “I wouldn’t make that bet. And not at that price, Robin. I don’t buy stocks over $25. There is a better chance for a stock to go from $2.50 to $5 than a stock to go from $25 to $50.”
Benj was so right. RIM, now BlackBerry, would soon crater to around $5. His advice, generously given, saved me money and heartache.
That back and forth on various securities lasted for years until just recently I asked Benj to be part of my book. He replied in his usual carefree way: “Sure, happy to do it. Let me know what time, Robin. Maybe I can even make us some bacon and eggs.” Regrettably, I didn’t take Benj up on his offer for breakfast, as I have no doubt that he’s as great a cook as he is an investor. And so, it was on a bitterly cold winter day inside Benj’s warm and welcoming Etobicoke home that I conducted my first interview for Market Masters.
Benj Gallander’s 15 Investing Lessons:
1) “‘Buy when there’s blood in the streets.’ If everything or virtually everything has been beaten up, you’ve then got a much better chance in the market. During tough times, people get scared, and, well, that’s the wrong time to run out of the market.”
2) “If I’m buying a stock under $5, there’s a lot of institutions and funds that won’t even buy it under $10. It’s only once it hits those higher levels that they can buy in. In simple economics of supply and demand, all of a sudden there’s more demand but supply doesn’t change; it’s constant. And that pushes the stock up further.”
3) “When we buy I set an initial sell target, which is something I don’t believe I did in the early days. That grounds me now. I pretty much only sell some of a position at or near the target.”
4) “I only average down once on any stock.”
5) “I only invest in companies that have been around for 10 years.”
6) “It’s important to say, ‘Okay, maybe I was wrong,’ and ‘I have to get out of this position, take my loss, and move on.’ If you can lose 20% instead of 50% or 100%, that’s huge.”
7) “If you’re buying 60, or 100, or 200 stocks through funds, you’re overly diversifying. If you overly diversify, you cut your returns automatically. I’ve usually held 15 to 25 stocks. I don’t want to exceed 25 stocks.”
8) “Things have changed because of technology. Everything moves more quickly and, as a result, people react more quickly in the markets. Too many people wave with the noise, and that really hurts returns.”
9) “Dividends allow me to be stupid longer. About half the stocks I own pay dividends.”
10) “I always have cash on the sidelines. It’s good to have for rainy days.”
11) “I’ve heard people say, ‘Margining would have made you way more money,’ and they’re probably right. But I want to sleep well at night.”
12) “Nothing goes up forever. There’s no stock that does that. These stocks that go up for a long time, like Apple, are a complete exception. I’m not a believer in ‘buy and hold.’”
13) “Sometimes you can catch takeovers, just because of a rumour.”
14) “There’s people who still believe in the Efficient Market Theory. But I don’t believe in it. How can a market be perfectly efficient when it drops 22.4% in a day? It’s impossible. Human psychology is a major driver of how people react. And that’s what creates so much of the pendulum effect that goes too far, which allows me to make money, both in the times of euphoria and the times of depression. People do not react in many cases rationally.”
15) “I’ve learned that debt is a killer in many situations, so if you can invest in companies that have very nominal or no debt, that helps companies survive during the hard times.”
Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.