This Stock Has Returned 5X the S&P 500 for a Reason You May Not Expect

Keith Fitz-Gerald Mar 04, 2016
14 

Quick… how many Comcast technicians does it take to fix a DVR?

Eight, evidently… and my DVR is still not working after five weeks of calling offshore customer service centers, visiting technicians who are guaranteed to arrive within a “two hour window,” and even the company’s executive resolution team.

Sadly, my predicament isn’t unusual and there’s no way I’d recommend investing in the company as a result. There are thousands of companies who claim to be all about their customers when, in fact, their customers might as well be an inconvenience based on how they’re treated.

I’m sharing my predicament with you for a reason – buying “what you know” used to be a fundamental underpinning of investment success. Now, it’s a recipe for disaster.

We’re going to talk about that today and, as always, I’m going to highlight a company where customers are truly the most important part of their business.

It’s a distinction that’s helped this company outperform the S&P 500 by 5 to 1 and led to returns 100 times greater than those achieved by Comcast – a popular investment choice – over roughly the same time frame.

What I Really Meant Was…

Investing icon and onetime mutual fund manager Peter Lynch ran the Fidelity Magellan Fund from 1977 to 1990. In the process, he achieved a remarkable 29.2% average annual return that more than doubled the S&P 500 over the same time frame. He was so successful that an estimated 1 in every 100 Americans invested with him for reasons that are easily understandable even today – it was the world’s best performing mutual fund.

Lynch achieved near rock-star status and coined a number of modern investing mantras, the most famous of which is “invest in what you know.”

It was an ode to the common man at a time when there weren’t many “common” men on Wall Street, and one I took to heart early in my career.

Lynch believed that individual investors are far more capable of making money when it comes to stocks than fund managers because they have the luxury of spotting unique trends in their day-to-day lives.

He noted, in his books and frequently during interviews at the time that he came across many great profit opportunities while driving around with his family, visiting the mall, or simply buying something at the store.

I don’t disagree.

Personal knowledge can be a very powerful driver when it comes to your money. However, that’s also where Lynch and I parted company.

You see, buying what you know can also work against you, especially lately.

Take Weight Watchers International Inc. (NYSE:WTW), for example.

The dietary company got a huge boost when uber-celebrity Oprah Winfrey jumped on board as an investor last October. Millions of investors piled on, simplistically reasoning that if “I know Oprah like I think I know Oprah, I should buy in, too.”

Unfortunately, that never ends well.

Doing so is really an emotional judgement… nothing more.

And, as we have talked about many times, making investment decisions based on emotions is one of the worst possible things you can do with your money.

Success is always about real numbers.

Weight Watchers recently reported a loss of $0.03 per share. Analysts expected a profit of $0.03 per share, so we’re talking about a $0.06 swing. Worse, the number of active users dropped by 4.8% to 2.39 million people.

The company still has some terribly difficult challenges ahead, including competition from other more successful programs, wearable technology, and the emergence of healthy grocers.

No doubt that millions of investors who have watched their wallets get thinner as the stock has tumbled from a high of $26.56 a share last December to around $15 a share today are probably wishing they didn’t “know” Oprah right about now and, instead, “knew” the numbers.

Interestingly, after years of quietly remaining in the shadows, Lynch surfaced and dropped a bombshell during a Wall Street Journal interview published last December, saying effectively that “buying what you know” hadn’t been what he meant.

And what exactly did Lynch mean?

Precisely what I’ve just shared with you… that you’ve got to “know” the numbers.

Why You Know a Company Matters When It Comes to Profits

There’s a big difference between investing in what you know and why you know it.

Take Sturm, Ruger & Co Inc. (NYSE:RGR), for example.

Most people are acutely aware of the gun debate raging in this country. And, whether they love the idea of investing in a gun company or hate the idea of investing in a gun company, they “know” most of the companies involved at least anecdotally, including Ruger.

The fabled firearms maker doesn’t need much to lure in legions of new customers and keep the ones they have. The Unstoppable Trend War, Terrorism and Ugliness will see to that, albeit very unfortunately.

Gun sales increase every time there’s another mass shooting or terrorist event because people want to protect themselves. And it’s not just here either. Shotguns and hand guns alike are selling out in Europe as the migrant crisis accelerates.

Every time Congress starts talking about gun control, sales rise. And when the President starts in on guns, they skyrocket because people fear that they’ll soon be unobtainable.

My point is that there’s plenty to “know” about the gun industry and Ruger, in particular because the company offers legendary customer service, strong dealer support, and powerful incentives like a points program to keep customers coming back.

And the numbers bear that out.

As does Ruger’s stock chart.

1imageJPG

No doubt, that’s a powerful draw for investors, especially in choppy markets.

What I want you to understand at the end of the day is this…

There’s a a big difference between buying a company because you know it – like Ruger – and being stuck with one like I am with Comcast.

So do yourself a favor and look beyond what you think you “know” because the answers may surprise you and your wallet.

Ruger has returned 270% over the past four years while Comcast has eked out only 2.48% over roughly the same time frame – a more than 100 to 1 advantage.

Now YOU know.

Until next time,

Keith

14 Responses to This Stock Has Returned 5X the S&P 500 for a Reason You May Not Expect

  1. ruben feliciano says:

    I am so surprise that no one out there takes the stand to do the opposite of what Comcast do bad customer service shabby programing bad or poor workmanship and rapping the public with their fees and no competition just a monopoly I think they are ripe for the picking this is a monopoly that any one could steal if the offer customers everything opposite of what Comcast offers people in the thousands would be happy to jump ship and leave Comcast in the dust.

    • Keith says:

      Hello Ruben.

      It amazes me, too. But, I think the answer comes down to something none of us want to acknowledge – namely that there’s very little truly free competition left in today’s highly manipulated markets. In my case, for example, Comcast is literally the only game in town in my neighborhood. So unless I want to use smoke signals, that’s pretty much what I’ve got.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. Don says:

    Keith – Thanks for your consistently logical analysis and calm tone, especially compared to alarmist commentary all around. Imitating you: The new jobs numbers seem to be very good news, showing largest portion in lowest income range, and progression in mid ranges, with decreases in one pay range and proportional increases in the next higher range – a sign of promotions! Stock market investors should be glad for the careers of our youngsters and mid-incomers. We need more hope in our young, and our resentful older voters. With jobs and progression (and sensible interest rates) comes the optimism and good citizenship that we need to temper our authoritarian emotions and growing political chaos.
    Certainly, chaos is not good for wealth. – Don

    • Keith says:

      Hello Don and thanks for the kind words.

      I think you’ve nailed it…and in very measured, logical terms. Way to go!

      I’d only add one thing, though.

      While it’s true that chaos can be tough on wealth, it can be great for profits!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  3. Michael Orchel says:

    Hi, liked your presentation for the message, some needless scare and medical hype in the presentation ( pharmacist here). Didnt like the ultra long presentation, i can digest facts quickly and see opportunity in what your presentation delivered.

    Perhaps you have a better deal on your subscription. Waiting in anticipation.

    Michael

    • Keith says:

      Thanks for the kind words, Michael.

      Look forward to having you on board!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  4. Houyhnhnm says:

    I feel obliged to defend Peter Lynch’s reputation. His first book covered fundamental analysis as well as the “buy what you know” theme. The point of “buy what you know” was to look for prospects among companies where you have firsthand knowledge, not to buy every attractive one. I didn’t get the impression he advocated buying any stock unless the financials passed muster.

    Houyhnhnm

    • Keith says:

      Your point is well taken Houyhnhnm.

      The twist is something the media came up with and millions of investors who never read the book went sadly, on their merry way much to their financial detriment.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  5. Rogan says:

    Hey, Keith 🙂 Great article! I have been subscribed to your “Money Map Report” for about a year. One of the best things you teach (and you make sure to consistently drive the point home) is that you must take the emotion out of investing. That’s made a huge difference not only in my investment returns but also in my life in general. If you don’t like something, don’t support it with your spending dollars… but that doesn’t mean you can’t profit off it with your investment dollars!

    • Keith says:

      Dear Rogan,

      You made my day! I cannot tell you what an honor it is to hear that.

      I will do my best to make sure your trust is well placed – thank you!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  6. Dave Scharman says:

    Well said. We live in the home town of BlackBerry. When we read reports that they were in trouble, we couldn’t believe it. The buildings are all there, thousands employed, best encryption in the business. We bought when others were selling. We bought more as it kept on dropping. Time to sell? No way. No stop on emotional grounds. Now down 50 % on a stock we thought we knew.

    • Keith says:

      Thanks for sharing, Dave.

      That’s an important lesson and one every investor learns the hard way. If you invest long enough, learning the hard way happens to everybody, even me. Mistakes, as my grandfather used to say, are the tuition for living life successfully.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  7. Ken says:

    I can understand why Comcast isn’t doing well. If many others have received the service that I did, it’s a wonder they are still in business.

    • Ken says:

      I do very much value the quality of your research. I wish I had had your advice several years ago when I signed up for Comcast.

Leave a Reply

Your email address will not be published. Required fields are marked *