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What Would George Costanza Do?


George discovered that by doing the opposite of what his emotions and intellect were telling him to do he could be successful.

For the most part stocks are a zero sum game. Every buyer is matched with a seller and for every winner there is a loser. Placing yourself on the right side of this match making process is the task every investor has to master.

When confusion rules and I need guidance from above, I turn to one of the great analytical minds of our time, George Costanza. You remember George, Jerry's sidekick in the hit TV sitcom Seinfeld. George discovered that by doing the opposite of what his emotions and intellect were telling him to do he could be successful. It worked brilliantly whether he was trying to pick up a girl, get a job with the Yankees and, yes, even picking stocks.

I decided to approach the market with the same analytical insight that George would use. Let's look at a recent purchase in my firm's fund, Whirlpool (WHR).

It definitely isn't a stock with positive momentum because even after a strong move it's pretty close to the lows. We just came through the worst Christmas in recent memory, housing prices aren't likely to bottom until the end of the year and I can't remember the last time I made money in anything that was dependent on the consumer.

You guessed it. George says buy it.

During most market cycles momentum investing and buying good news works. Now I am understating it. It works fantastically. But at times like this the potential to be whipsawed and cause significant losses is very high. Without a strong bull market at our back, buying stock breakouts will prove disappointing because a few months from now we will be selling them as they break down.

So let's look and see if George has anything going here. Why Whirlpool and why now?

For a valuation comparison let's go back to 1990-91 when its valuation was depressed like now. Whether looking at EV/Sales (enterprise value/ sales) or Price/Sales, Whirlpool is trading close to historical valuation lows. Add aggressive interest rate cuts and the fiscal stimulus package coming out of Washington and you have an early cycle stock with a strong bottom in place. We'd all like to be able to catch the homebuilder bottom. Here is something almost as good but it actually earns money. Even if the company misses expectations by 10%, it will still be trading at 10x earnings.

Maybe George has something.

No positions in stocks mentioned.
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