During Christmas week in 1992, I appeared as a guest on CNBC television. While television appearances can be fun, and I did continue live interviews from the floor of the Montreal Stock Exchange for many years, most of my clients and friends asked me not to do them since it usually entailed making stock recommendations.
Most of the recommendations that we see on television are not always timely, and too many are designed for trading, to which the public is not and never will be suited. An example would be breakouts as a stock hits a new high. Too often it is a signal to short a stock, and the public, for the most part, is incapable of trading the stock market.
The complaints have a lot of merit. Most brokerage house research is, and always has been, severely lacking, and experienced investors are quite aware of it. In 2001 and 2002, there was a media frenzy covering the dismal performance of brokerage industry analysts. The best ideas come from private investment services, independent investors, some newsletters and, yes, one's own analysis.
Among the ashes of the badly beaten down stocks can come superb returns. Mutual funds, for the most part, tend to recommend and thus support their own holdings. They never seem to recommend stocks that they are just starting to accumulate at or near a stock's bottom. It is important to understand that of the more than 10,000 stocks that are traded in the U.S., only about 2,000 stocks (at best) get comprehensive research coverage. Among those stocks that are overlooked and uncovered are some of the best values available.
The CNBC host that December day was Ted David, whom I have always liked since I have felt that he views a lot of research with a critical eye. He asked me what stocks Santa Claus had in his sack.
One of my own rules was that if I recommended a stock publicly, I could not sell for quite a while. So I never liked doing it, but I gave Ted three stocks that I thought were undervalued. I knew the managements of each company, and I believed that at their very undervalued prices, viewers would benefit.
My three stock recommendations were Iatco (later changed to Airboss) at $1, Freewest at $2, and Petromet at $0.75. All were listed on the Toronto Stock Exchange, were undervalued, and, above all, were not being recommended. They were all new, overlooked small-cap companies not yet meriting attention, except perhaps from value buyers. I left the studio satisfied that my recommendations would do well.
So how did they perform? Petromet was up 482% in six months, and, within three years, it was trading at more than $9. It was later bought by NYSE-listed Talisman (TLM) for $13.40 Canadian. Freewest moved up 50% within 18 months and was taken over by Hemlo, which was taken over by Battle Mountain, which was taken over by Newmont Mining (NEM). Thus, the old Freewest shareholders now own Newmont Mining through takeovers, and they still own the new Freewest from the spin-off. Iatco, later renamed Airboss, popped up 30% and went down as well. But it was up 600% from my original recommendation price by the end of the decade.
Petromet was up over 1,000% when it was taken over by Talisman. Not bad. I had several others that were overlooked and forsaken that I had recommended on other appearances that did as well and even better. Very few did not perform superbly.
After I returned to my office from CNBC that December day, I received several phone calls from viewers. I also received a phone call from the CNBC booker who informed me that I was not going to be allowed to recommend any more of the low-priced Canadian stocks. I called the producer, and she told me that she did not want it.
Ted had asked me what stocks I thought would do well, not what large-cap, NYSE-listed company would do well. And viewers who paid attention did well. I did my analysis, and the results were excellent.
My friend and brilliant economist, the late David Bostian, had warned me to use only my own recommendations - not those of the firm at which we were both working. I might add that I cannot recommend any stocks on television. However, there are many - yes, many - investment professionals that should be on television giving stock recommendations that would greatly benefit viewers and possibly boost ratings. You think that viewers don't pay attention to television stock picks? You should see my emails!
What is my point? Well, as Peter Lynch said in his best selling book, One Up On Wall Street, the number one rule is to stop listening to professionals! Twenty years in this business convinces me that any normal person using the customary 3% of the brain can pick stocks just as well, if not better, than the average Wall Street expert.
Peter was, and remains, absolutely correct. There is so much valuable information available to investors that can allow for significant investment success, but you should do your own homework.
I love business television in Canada and the U.S. But if they really want to give their ratings a boost, the stations should be looking for professionals who can give viewers undervalued stocks, not their own brokerage house's stock picks. There are plenty of them around, not the same old usual suspects.