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Benj Gallander is a different breed of investor who has achieved strong investment returns for his Contra The Heard Investment Letter, and readers of the Globe and Mail investment column he writes with his colleague Ben Stadelmann.
A contrarian-value approach to stock picking has allowed Mr. Gallander to achieve 15-year annualized returns in his President's Portfolio of 21.6 per cent. That compares to slightly more than 7 per cent for the S&P/TSX composite index over that time.
Mr. Gallander spoke to Capital Ideas Research about the evolution of his investment philosophy or, as he calls it, his system, and his latest stock ideas.
He says he was always inherently contrarian, and that informed his investment style when he started buying stocks about 40 years ago.
"I think I've always looked at things in a somewhat different way and it's probably a major part of my genetic makeup. So it just came naturally to me," Mr. Gallander says.
His system
What criteria does Mr. Gallander use to determine if a stock is worth buying?
"The companies have to have been around at least 10 years," Mr. Gallander says. "It has to be down at least 33 per cent in the past 52 weeks. It has to have traded at much higher levels for a good portion of the past 10 years. A good balance sheet not constrained by a lot of debt is important. I look at who the management is. I'm also looking at 100 per cent upside. Often two, three, four hundred per cent."
Timing buying and tax-loss selling
Mr. Gallander tries to be seasonally opportunistic in attempting to buy stocks at lower prices and to sell when trading volumes are higher.
"I do almost all of the buying at the end of the year because that's where there's tax-loss selling," he says. "So, if supply of the stock goes up that tends to push down the price and I can also get the benefits of the Santa Claus rally. I tend to do tax-loss selling early, often in May, because the summer doldrums usually set in after that. So it's a system based on having huge returns yet, at the same time, a big part of it is made up of small increments."
Cycles are a constant
"I'm a great believer in cycles, I don't know necessarily the time frames, but what has been generally will be at some point in time," Mr. Gallander says.
Dividends cover up stupidity
Dividends also play a role in Mr. Gallander's strong returns. They allow him to get paid in case a stock takes longer to rise than expected – or if he's wrong.
"I really do like getting dividends," he says. "Dividends allow me to be stupid longer because if the stocks don't move I'm still getting a return on my investment."
Patience, patience, patience
Mr. Gallander once told me he had a stock on his watch list for three years before he finally…didn't buy it.
"Because our sell targets are so much higher than our buy-in prices we have to be patient because the stocks aren't going to go up 300 per cent each year," he says. "But it doesn't mean I believe in buy-and-hold in perpetuity because at a certain point stocks are generally fully valued or over valued."
Lessons learned
After 40 years investing in stocks, a few key lessons Mr. Gallander has learned are to avoid companies with a lot of debt, rarely average down on a stock, and don't over diversify.
Three contrarian stock ideas from Benj Gallander
"One is Innodata. They're into digitization. I paid $2.21 (U.S). I think that's a good one," Mr. Gallander says. "The initial sell target I have for it is $6.74. It's not a huge trader so all of a sudden they'll make a deal and there'll be some excitement about it. So it's not necessarily based on fundamentals, it's based on a certain amount of hype and hope."
"A big company that I like is Aegon, a big Dutch insurance company, pension company with a big operation in the States," he says. "I think at some point it has potential for tremendous upside. We think it can return to $20 where it used to trade."
"On the Canadian side, one that has moved somewhat that I like is Reitmans," Mr. Gallander says. "We paid $3.81 in January. Their same-store sales have been going up mainly because of the Internet, and they closed down their Smart Set locations. They've hired some new people and I think that should give them some new blood. I've seen a bit of their advertising campaign and it looks pretty smart overall."
Special to The Globe and Mail