Buy What You Hate
Every trader has heard the old investing adage: "buy what you know", usually translated as "buy what you love". Dilbert inventor Scott Adams offers a new spin in his WSJ article Betting on the Bad Guys: buy stock in companies you hate.
Adams is only half-joking, and he makes some interesting points. Adams summarizes his reasoning like so: "The usual reason for hating a company is that the company is so powerful it can make you balance your wallet on your nose while you beg for their product." As two timely examples, he cites British Petroleum (BP) and Apple (AAPL). BP is hate-able right now for very obvious reasons, but the mere fact that BP's extreme incompetence still won't rule them out as players in their (very powerful) industry in the future means that BP is, begrudgingly, a stock worth watching in Adams' view.
Even a company that appears to do everything right like AAPL can fall under the "buy what you hate" rule. As he puts it: "My point is that I hate Apple. I hate that I irrationally crave their products, I hate their emotional control over my entire family, I hate the time I waste trying to make iTunes work, I hate how they manipulate my desires, I hate their closed systems, I hate Steve Jobs's black turtlenecks, and I hate that they call their store employees Geniuses which, as far as I can tell, is actually true. My point is that I wish I had bought stock in Apple five years ago when I first started hating them. But I hate them more every day, which is a positive sign for investing, so I'll probably buy some shares." Fair point, huh?
Adams isn't the only investor out there holding his nose while he buys. Slate's Daniel Gross wrote a similar article Buy What You Hate back in 2006. He compared a Harris Interactive poll about company reputations and the then-current levels of the S&P. What he found was eye-opening: some of the companies with the cruddiest reputations, like Altria (MO), Martha Stewart (MSO), Exxon Mobil (XOM), Royal Dutch/Shell, Tyco (TYC), and Halliburton (HAL)—five had outperformed the S&P 500 over the previous three years.
More recently, Barry Ritholtz applied this reasoning to various financial companies whose stocks are stubbornly rising despite all the many, many people rooting against them. In his Forbes interview Ritholtz cited Citigroup (C), Bank of America (BA) and Fannie Mae (FNM).
True, there's some tongue-in-cheek factor here, but the idea is still an intriguing one, sort of an investing take on "if you can't beat 'em, join 'em".
Have YOU ever invested in a company you hated simply because it was undeniably moving upward?
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