Hardesty Capital Management News & Updates

In one episode of the hilariously funny 1990’s sitcom Seinfeld, George Costanza, a slightly overweight, balding, unemployed and self absorbed 30 something, decides to make a change in his life. He concludes that he should try to do the opposite of his every idea and instinct. Immediately, things begin to go his way; a girlfriend, a job with the Yankees and moving out of his parent’s house (a real achievement if you know the character). Although George Costanza hardly represents a beacon of financial acumen, the history of the markets suggests that “doing the opposite”, zigging when others are zagging, can actually work. Conversely, if you are content to take the tried and true paths of others, in your best case scenario you may wind up equal to the pack and have achieved nothing more than the overall market average.

The dictionary defines a contrarian as a person who takes an unpopular position opposite to that of the majority. A contrarian investor believes crowd behavior among investors can lead to exploitable mispricing of securities. For example, widespread pessimism about a stock can drive a price so low that it overstates the company’s risks and understates its positive prospects. Widespread optimism, conversely, can lead to speculative bubbles with unjustifiably high valuations. The Dutch tulip mania is a well known example of wild speculation. Contrarian investing is related to value investing in that overwhelmingly negative sentiment can give rise to what Benjamin Graham famously called a “margin of safety” when purchasing stocks, essentially the ability to purchase earnings and income at a discount to their intrinsic value. Arguably, that “margin of safety” is more likely to exist when a stock has fallen a great deal and is usually accompanied by negative news and general pessimism. Read the rest of this entry »

Every investor should strive to achieve the largest possible return on investment given a certain tolerance for risk. Although this axiom seems obvious, during periods of economic turbulence it is critical to focus on the risk side of the equation. How safe is the principal value of my account? Am I well positioned to weather a market correction and rebound fully when the investment climate turns favorable? Intellectually, we understand that long term appreciation and income are equally important. But, as markets fluctuate, falling prices can blur the investor’s vision and raise the question: Is my money safe?

Our current economic difficulties stem from the financial crisis that began in 2008, when consumers, financial institutions and businesses recognized the dangers of the explosion of debt that accompanied the “housing bubble.” Not surprisingly, investors raced to the sidelines seeking safety for virtually every financial asset. Today we are replaying a different Read the rest of this entry »