I did an extensive interview with Wall Forbes of Forbes magazine. You can see the whole thing at Forbes.com, but here is a brief excerpt:

Forbes: So what kinds of things are you recommending at this point?

Ritholtz: I’m going to give you three groups of investments, one of which makes sense, and the other two are really counterintuitive. Or maybe it’s not counter-intuitive, it depends on how you think of it.

The first group is what I call our bailout bet. And that’s all the companies that I think are horrible companies and I hate their managements. They’re terrible corporations, and we should throw them into the ocean. But we had to hold our nose and buy them, because they were going higher. And that’s Citigroup, Bank of America, and Fannie Mae.

Forbes: Interesting.

Ritholtz: Three giant disasters. This is what I would call a trade, not a put-it-away-for-the-future. They’ve all moved significantly higher. Citigroup, over the past few months, has gone from $3 to $4, which in terms of percentage basis, it’s a big move up. Fannie Mae has an absurd amount of momentum behind it. I think people are saying, “Well, the government now can’t let them go belly-up because they’ve thrown so much money at them.”

And Bank of America seems to be trading fairly well. I don’t like any of their management teams; I don’t like any of these companies. You know, this is the sort of thing that would make a Warren Buffet or Peter Lynch type of investor nauseous.

It’s like, wait a minute, you hate the company, you don’t like the management, and we bought it despite that. So that’s one group. A little counterintuitive, but you know the rationale is, everybody hates them. And yet they’ve gone up. It’s telling you to take a look at Citigroup, and look who’s been buying Citigroup. We see a lot of institutional big pension funds buying them. A lot of big institutions, things like state pension funds.

This is a reversal of what I said a year ago January. I hated these names then, I hate them now, but obviously many other factors and circumstances have changed.

There you have it, my new trading approach: Buy What You Hate.

~~

UPDATE: April  9 2010 8:54pm

I am obviously being very tongue-in-cheek (although some people are missing the nuance)

The idea of buying a hated stock is put into better context here.


>

Source:
Worst-To-First Market Heroes
Wallace Forbes
Forbes, 04.08.10

http://www.forbes.com/2010/04/08/citigroup-fannie-mae-intelligent-investing-bear.html

Category: Media

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

57 Responses to “Buy What You Hate (WTF?)”

  1. SavetheWhales says:

    I am going to do it: This is the top. Right here. Right now.

  2. SavetheWhales says:

    (My reason: Not quite a magazine cover indicator. But close enough.)

  3. destor23 says:

    Wally does a good interview.

  4. Mannwich says:

    What a freaking bizarre time period in so many ways. Unreal.

  5. Charlatan says:

    I don’t know if BR is going to do a “What are you reading?” post today, so I’ll include this here as something I read today: “The real villains–Congress and the management of FNM/FRE for playing fast and loose and bowing to pressure to make bad loans (which initially spiked the stocks at FNM/FRE so the execs could sell) –management of an INSURER–AIG and the management and UNIONS at GM. Banks that paid back the government should be free to do what they want.” — Jim Cramer, 4/9/2010 2:59 PM EDT.

    So there you have it……the banking crisis was caused by government pressure on the financial system to make bad loans. And those banks should be free to do whatever they want. Boy, I’m glad that’s finally settled.

  6. franklin411 says:

    I hate Steve Forbes. Does that mean I have to buy his magazine? =)

  7. Dow says:

    What STW said. Sounds like the top is in.

  8. Sunny129 says:

    ”Anyway you look at it, the chances of another panic are increasing. Not to worry though. In America, Dow 11,000 is coming, retail sales are up by decade high percentages, and happy days are here again.’

    http://www.creditwritedowns.com/2010/04/fitch-downgrades-greece-to-bbb-with-a-negative-outlook.html

  9. The Curmudgeon says:

    I reckon buying what you hate is better than hating what you buy. For traders, there’s a load of reasons to buy these despicable companies. Just rush home and take a good long shower after you do.

  10. Transor Z says:

    I hate bouncy, upbeat, sugary-sweet people. Where can I buy one?

  11. Mannwich says:

    Steve Forbes – the man that never blinks. Creepy smile too.

  12. call me ahab says:

    well- so much for “The Big Picture”-

    maybe you should change your blog- any ideas?

    here’s one-

    “The Quick Trade”

    todays subject-

    “The Dash for Trash- and how you can win big”

    moving up in the world there BR- I am sure they are warming a seat for you over at Fast Money

  13. Chz says:

    Hum, I guess I’m buying long “Yes we can” (YWC) ETF…

  14. Europe says:

    Isn´t that the same investment strategy that non professionals use? If something goes up, buy buy buy. If there is more momentum to the upside, buy more and speed up…..isn´t this IT-bubble investment strategy? You do not like Citygroup, you are almost sure that they are insolvent and have been cheating and cooking their books for a long time. You hate the management…….and then you invest in the company…..?

    “The rise of Junk”-theory?

    I just lost faith…..

  15. Mannwich says:

    Join the club, Europe. We’re growing.

  16. call me ahab says:

    “isn´t this IT-bubble investment strategy?”

    wrong Europe-

    the IT companies didn’t have the full faith and credit of the United States supporing them-

    that was a real bubble w/ a real crash- and no rebound- but I bet if the USG would have injected $$$ into the dot coms and threw a Trillion or or two around after the bust-

    BR would be talking about Pets.Com right now

  17. bobabouey says:

    People bitching about this post, or oversimplifying the point Barry is making, need to spend some good, serious reflective time reading Barry’s prior post, which is one I will be saving in my permanent file….

    http://www.ritholtz.com/blog/2010/04/10-thoughts-on-psychology-valuations-adapative-investing/#comments

  18. Mannwich says:

    The new bubble is clearly the TBTF’s. Clearly they’re all going to infinity.

  19. Thor says:

    And Beyond!

    Sorry Manny, couldn’t resist ;-)

  20. Transor Z says:

    What’s to bitch about? N.B.: Barry cited relations with institutional investors two or three times in the brief interview. Barry advises clients on their investing choices. It’s their call on whether to put moral filters on their investing, not his.

  21. Mannwich says:

    I agree, Transor. It’s Barry’s job so you either play or don’t play. Gotta play the hand that’s been dealt if you’re in the biz.

  22. And Thor and Mannwich — here is the bizarrely interesting part: We have been asked by institutional clients to set up a Socially Responsible Investing screen (now called Sustainable investing).

    The same quantitative approach, using a slightly different universe (SRI)

  23. call me ahab says:

    bobabouey-

    what a groupie-

    Howard Stern and BR-

    and I will read this post anyway I want- and you can read it how you want- and we can say what we want-

    becasue- you know- liberty and freedom rules-

    and that’s my “Dudist” philospohy for today-

    “Spread the Word”

  24. bobabouey says:

    You got me pegged, my morning starts reading Ritholtz and listening to Stern… In my evenings, again following my idol BR, I occasionally catch up on Peter North’s work.

  25. Daffyorbugs says:

    Ahab

    Why do you read the blog if you hate it so much? If you’re such a genius start your own blog.

  26. call me ahab says:

    TZ-

    couldn’t care less what BR invests in- and kudos to him for admitting he is investing in a company he lambasted for as long as I have been frequenting this site-

    but where is the “fusion IQ” and “Big Picture” to this trade- “dash for trash” is well documented even for the worst of traders

    ~~~

    BR: I sure as hell didn’t pick these because I like them — they came OUT OF THE QUANT system.

    If I didn’t own them because I didnt like them, but IQ had them on a new buy, I’d be a hypocrite!

  27. bobabouey says:

    Call me ahab – PS, also a huge fan of Melville, sorry to say. The Fast Fish / Loose Fish is perhaps one of my favorite pieces from Moby Dick, and probably has some metaphorical fit to Barry’s prior post on psychological, valuation, adaptive invest rules. As Melville concludes at the end:

    “What all men’s minds and opinions but Loose-Fish? What is the principle of religious belief in them but a Loose-Fish? What to the ostentatious smuggling verbalists are the thoughts of thinkers but Loose-Fish? What is the great globe itself but a Loose-Fish? And what are you, reader, but a Loose-Fish and a Fast-Fish, too?”

    http://www.americanliterature.com/Melville/MobyDickorTheWhale/90.html

  28. call me ahab says:

    Daffyorbugs-

    I am a genius- thank you- and someone has to keep BR’s ego in check- it’s a service really- and my own blog- please- that requires work

    Bobabouey-

    have you ever heard the clip on how that name came about? Haven’t listened to Stern since he went to satellite- still good?

  29. bobabouey says:

    Ahab, yes, I’ve heard the original bababooey / baba looey clip, still funny every time I hear it again. My favorite part of the stern show is the staff interaction, I think its a real microcosm of many other working environments. That is still a big part of the Sirius show, which is overall still quite good, but again, I do not deny that I am a groupie, so I’m biased. And it is much, much more vulgar without any censorship… my wife used to tolerate the occasional Stern in car drives, no more…

  30. call me ahab says:

    bobabouey-

    dude- I have listened to Stern while driving- laughing to the point that I had tears rolling from my eyes-

    his interviews are classic exchanges and anybody going in there should know what they are in for-

    . . .and yes- Melville was a great writer- and Moby Dick- a great story

  31. Transor Z says:

    One man’s dash for trash is another man riding the prevailing wave for treasure, I guess.

  32. dead hobo says:

    My best recollections of TBP are trading advice put into the proper context (BR setting a out a strategy, others saying here’s what they’re doing at this time, newbies and rubes trying to figure stuff out) and other pieces that add depth and reasonable analysis to the crap that passes daily for news and current events.

    My best marketing advice is to continue with that approach, but make the line a little brighter. Yes, there’s lot to be made if you are astute and can appreciate the risk in relation to your personal situation. And never forget to respect that everyone (your readers) comes from different places and have different situations and different responsibilities. You can tell your story without hurting someone else because they’re not as smart as you because they didn’t do something you claim to have done.

    There’s a lot of thieves and crap masters who want your money and will say anything to get it. Walk that line and try to appease both sides and suffer a total humiliation by 10000 cuts. Rise above it and try to find a truth of some kind and become a legend.

    Either way I’ll still be a smart ass because that’s just me.

  33. I-Man says:

    Its good to see that the Dead Hobo is still the Dead Hobo.

  34. Marcus Aurelius says:

    Charlatan:

    Your point has been debunked here, on numerous occasions.

    Boy, I’m glad that’s finally settled.

  35. Marcus Aurelius says:

    BR:

    In an effort to maintain the value of my respectable nest egg, I’ve made pretty good money (of coure it’s a paper gain until I sell). I didn’t buy anything I didn’t like, and it’s all been relatively low risk. I’d say I’m up around 40% over the past 3 years. I’m very conservative, risk averse, and aware of what the corporatists control, and how they can fine tune the outcomes of the markets, globally, to make it for them, while taking it from you/us. I hate risk, and I refuse to buy it.

    This is a very risky market, generally speaking.

  36. call me ahab says:

    MA-

    sound advice

  37. Marcus Aurelius says:

    Thank you, ahab.

  38. changja says:

    Isn’t this a HUGE contrary indicator? When people who hate it want to buy it?

    ~~~

    BR: Could be — but we bought it because our quant model suggested it – I just happen to hate these firms also . . .

  39. ben22 says:

    not sure when you bought them BR but nice trade man. Seems that you are in good company as it’s been reported that Paulson is in C and BAC as well among some other heavy hitters.

    Also Berkowitz is long but I guess for different reasons than Barry. I found it a little odd as I thought he was a “value” guy. So I looked that up. He had this to say in an interview once:

    “We start with this basis: The only thing you can spend is cash. We want companies that generate significant cash in most times. That is how we start. We don’t care much about what they make, but we have to understand it. The balance sheet has to be strong; we want to make sure there are no tricks in the accounting. Then we try and kill the company. We think of all the ways the company can die, whether it’s stupid management or overleveraged balance sheets. If we can’t figure out a way to kill the company, and its generating good cash even in difficult times, then you have the beginning of a good investment.”

    “A bad person can cause you pain every time, no matter how good the company is. Management is important. They should have a paper trail of succeeding.”

    Here is the link: http://www.forbes.com/2008/08/14/berkowitz-fairx-pfe-pf-ii-in_jl_0814adviserqa_inl.html

    Oh well, guess that applies to the banks…..or is this just his process on some

  40. Charlatan says:

    @Marcus. There should have been a sarcasm disclaimer on my post. I think Cramer’s viewpoint on the banks and lending is not only wrong, but reflects a twisted, despicable mindset. It ASTOUNDS me that the guy can vehemently oppose reform at every step and still be sold by CNBC as a champion of the small investor. Christ, we’re talking about a guy who even publicly opposed Reg FD!

  41. constantnormal says:

    But but but … what about the most recent lessons? What about people like Mike Burry and (John) Paulson, who saw something they hated (or at least recognized as representing an unsustainable pattern) back prior to 2006?

    They did NOT buy the momentum and ride it until the perfect moment to bail (perhaps because there are no reliable ways of determining that particular moment), instead they shorted the unsustainable movement, and bided their time until they were proven correct, increasing their short positions the longer the insanity persisted.

    Am I to believe that people who have made a BUNDLE by betting against an unsustainable bubble are wrong?

    I think I’ll wait until this bubble bursts, and see how many of the momentum players end up choking on stocks that they hated, but bought them anyway.

  42. constantnormal says:

    That said, for those intent on riding the market upward, doesn’t it look like the NASDAQ is headed to 3500?

    http://www.chartoftheday.com/20100409.htm?T

  43. back towards the prior channel anyway

    Call it Nasdaq 2800ish

  44. Nic says:

    What a fantastic trade idea. Even more incredible you don’t just have to pick the ones that you think the government will save. A high tide floats all trash including OSTK since February.
    Bravo …

  45. Pat G. says:

    So as I understand it IQ’s favorite sectors are those that are momentum driven and which fall under a broad category of; the USG “put” and new “toys” . With the former fueling the latter. That doesn’t say a lot about the overall markets now does it? No thanks!!

  46. call me ahab says:

    Nic-

    love the picture of that chick w/ the phone and laptop- damn near sexy considering-

    you pray tell?

    have to admire that “always at it” attitude (-:!!!

  47. carleric says:

    Given that I consider all financial financials to be best defined as “black Boxes” I will just watch. I can’t bring myself to buy financials. I know they are lying, cheating, thieving gas bags and not particularly smart but very greedy and thus am willing to avoid the possible profits but good luck to you

  48. MayorQuimby says:

    I would do ALL of the following before purchasing ANY TBTF stocks:

    1. Burn my money.
    2. Shred my money.
    3. Give my money to a charity.
    4. Give my money to a criminal (street-level).
    5. Pay more than my required amount of taxes.
    6. Wax my beard.

    There is NO WAY I will EVER support the theft and rape of taxpayers. You’re money is your real vote. Don’t think for one second that November means anything.

  49. VennData says:

    Mayor? Where do you bank? Any TARP recipients give financing to your gig? …or where you shop? …your mortgage? etc?

    Oh it’s not theft and rape. We’ll lose a little on TARP and save American Capitalism.

    Now… Put down the Tea cup …and go out there and make profitable investments like a good taxpayer.

  50. alfred e says:

    @BR: Bizarre?? Socially Responsible Investing Screen??????

    So exactly when and why did they find it necessary????? Duh.

    My simple question more than once to cognos: Is it about you or us?

    I am going to guess you have institutional investors that have more at stake than their bonus. Or are more socially enlightened. We are all in this together. Gated communities and remote islands don’t get it done.

    And perhaps they understand fiduciary responsibility.

    Many moons ago some smart people at an MCI workshop chose the first message: What goes around comes around. J6P can occasionally be quite smart.

    So they perhaps are more knowing in a caring sharing way.

    Or they understand the prospects of pitchforks and torches.

    Hasn’t come up in quite while.

    Somebody knows more than they are sharing.

  51. rktbrkr says:

    Has the ratio of insider buys/sells changed significantly? It was horrible a few months ago in the midst of the great drecession

  52. flipspiceland says:

    “Yep. I’m pretty sure Howdy Doody was a puppet”. (a. monk)

  53. insaneclownposse says:

    isn”t this the same rationale that got us into the credit crisis in the first place? It’s ok because you’ll be able to get out before everyone else though, right? If you are wrong about that you can blame it on your quant model….

  54. @ben22 Says: April 9th, 2010 at 7:13 pm

    That was beautifully put. I don’t think it will ever lead me to buy the banks though. That would fly in the face of what ethics I have left

    Until the economic model changes I can’t ever buy economic vampires

  55. om-luke says:

    BR said: “here is the bizarrely interesting part: We have been asked by institutional clients to set up a Socially Responsible Investing screen (now called Sustainable investing).”

    LOL, “sustainable investing”, isn’t that just a “sell and hold” screen..

  56. flipspiceland says:

    Hard to believe that while most have bemoaned the Buy and Hold stragetery, that it was exactly unquestionably the right thing to do, beginning about 13 months ago.

    That single move would have made multi-millionaires many times over.

    “It don’t mean a thing, if you ain’t got that swing”.

  57. [...] You may recall I mentioned a recent trade in Citigroup, and Bank of America, posted under the headline “Buy What You Hate.” [...]