The art of extreme value investing

By Bill Mann, CBS
Nov. 6, 2004

FORESTVILLE, CA (CBS.MW) - As an investor looking for a new approach, are you ready to "tap into your inner vulture"?

I'd heard of value investing, growth investing, momentum and top-down investing. Then, the other day on a radio business show, I first heard the term "vulture investing." It was defined as "buying companies that are on death's door."

Two that were mentioned on the radio were Merck (MRK: news, chart, profile) and Marsh & McLennan (MMC: news, chart, profile). I really don't know if those companies are quite THAT sick, but MMC's six-month stock-price chart does look remarkably like a prominent terrain feature in Monument Valley -- conjuring up images of the desert and, yes, vultures. (Note to U.K. investors: The British term for vultures is buzzards.)

Continuing the metaphor, a Money Magazine writer told the radio business reporter, "The stomach it takes to eat dead corporate animals is beyond most investors."

The report then asked, "So, are you a vulture -- or a chicken -- when it comes to investing?"

I'm potential vulture chow.

I thought I was a tiger five years ago when I bought into Dr. Or when I paid $100 a share for EMC (EMC: news, chart, profile), which now sells for a small fraction of that.

True, EMC hardly seems like a company on death's door, and the buzzards aren't circling. But I'm still in denial, and the bleached bones of my tech-heavy, EMC-laden portfolio look a lot like something you'd find out in the desert, with large fowl overhead circling a small bit of carrion (insert tired airline-luggage joke here).

The remnants in my portfolio also contain the DNA of such former powerhouses as Sun Microsystems (SUNW: news, chart, profile) and Cisco (CSCO: news, chart, profile) that I bought at -- or near -- the top four years ago. Cisco at 90? Seems like a fond memory, like $1.19-a-gallon gas, Oldsmobiles, or Ricky Martin.

I may be a mental midget when it comes to due diligence and intelligent investing, but I loom large in short-sellers' eyes.

I call my approach "reverse vulture investing." This mirror-image Midas touch allows me to consistently buy into companies who will be on life support sooner than you can say Dr. Kevorkian, or Dr. Koop.

I get cold calls from guys in boiler rooms somewhere in Manitoba whose voices haven't cracked yet trying to sell me "value" shares of Sinclair Oil, Woolworth's, or Dumont Broadcasting, and I'm on it like white on rice.

When an especially sketchy broker tells me sotto voce he has inside information that Coleco has a hot new video game coming out, Frogger 3, I make like Dumbo -- I'm all ears.

No, what I do isn't the same thing as "vulture investing," also called "patient value investing." I'm usually the patient.

For example, when I learn that the defunct (oh, NOW they tell me!) Penn Central Railroad has a "tremendous upside" because of rising oil prices, I hop on board faster than you can say "sucker."

Whatever company I invest in, it seems -- even a well-established one -- usually ends up flat on its back with tubes coming out of it within five years. Either that, or it's now nonexistent. I've bought more turkeys than Safeway the past few years, and there's not much left in my portfolio for buzzard brunch.

So, if you're one of these so-called "vulture investors," all you have to do is watch my investments for future bargain-basement stocks. If these firms aren't already doomed, they'll probably go into the tank faster than the principal at a grade-school carnival.

I've thought about putting out my own newsletter -- just to disclose to short sellers what I own. Given my luck in the market, anyone who repeated my buys would soon be vulture food themselves, not vulture investors. I've seen more corporations go up in flames the past five years than a Delaware firefighter does in a lifetime.

How bad am I at stock-picking?

Well, I recently asked a neighbor who's a licensed investment adviser -- and whose services I have stupidly not used -- what he thought of several stocks I'd just bought.

After shaking his head grimly, he replied, "Your best hope, Bill, is that you clot easily."




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