- By Carl Delfeld, financial advisor to the US senate and global fund managers.
So just what is the secret of great investors?
In short, they catch stocks as they “bounce” off the floor by using only the very best “on-the ground” information. Then, they act boldly and decisively.
Great investors follow these deceptively simple bounce steps:
- invest in high risk ventures but rather in established, dominant, advancing firms operating in high growth markets
- concentrate their investments in three sectors; food & consumer goods, property & finance, and natural resources
- leverage their network to look beyond the headlines and widely held perceptions. They demand the best information on what is really happening on the ground
- dig deeply to find great value stock opportunities that have several significant and sustainable advantages on the competition such as a monopoly, market domination or pricing power
- always confirm at least one powerful catalyst that will restore or generate high and consistent levels of growth and profitability
- are very patient and selective, picking the right time to invest just as an upturn begins and doing so in a decisive manner
To sum up, great tycoon investors find great value and then capture the bounce as the market finally catches on. Now, these steps may seem self-evident but are actually very contrary to human nature and how most financial advisors and investors operate. Why? Because consistently executing these six steps requires great contacts, effort, focus, patience and decisiveness. In fact, almost all advisors, the financial media, and investment newsletters do just the opposite of the bounce blueprint.
They follow the headlines and conventional wisdom. They don’t have a clue what is happening on the ground. They follow growth and momentum strategies because they are easier to sell and execute. They don’t pay much attention to price or the importance of timing. Oftentimes they are not selective or patient but throw out idea after idea. They are unfocused, chasing ideas all over the map.
In order to put a consistent stock reviewing system in place, I have taken these six steps and broken them down into a more detailed model that I use to score stocks. Only those that rank 90% or higher become bounce trade recommendations.
And the good news is that this model can be easily applied to any country and market in the world.
Here is one example of my “value bounce” strategy in action.
DOLE: The King of Fruits & Vegetables
At 89 years and counting, pineapple tycoon David H. Murdock is still going strong. After hitting pay dirt in the real estate and construction business, Murdock took over the ailing Castle & Cooke, the owner of Dole Foods. The perception was that the company would go bankrupt. Murdock saw the reality of Castle & Cooke’s unappreciated landholdings and the value of the Dole brand. Castle & Cooke controlled 98% of Lanai, the sixth largest island in Hawaii.
He soon leveraged the company’s extensive real estate holdings into high end commercial projects and turned Dole into the world’s largest producer of fruits and vegetable building on the firm’s reputation in pineapple and bananas. Then Murdock bought Dole Foods outright and then six years later brought it public as Dole Foods (DOLE).
Murdock currently owns about 40% of outstanding shares but recently made a smart move to unlock value. First, he sold the Asian packaged fruit business to Itochu using the proceeds to bring debt from $1.6 billion to around $300 million. This will boost cash flow and lower risk.
The market, however, took this move and some weak banana pricing as negatives sending the stock down 20%. Early this year, we pounced after seeing the stock trade at about seven times earnings before taxes and depreciation. The market also did not seem to recognize the company’s real estate holdings that I estimate to be worth around $500 million.
As an insider, Murdock recognized the value and offered $12 a share for the remaining 60% he doesn’t own. DOLE is up 48% over the last three months since I recommended it but I think the shares could be worth as much as $20 a share.
Think like a tycoon. Be selective, be bold, and be decisive.
Opportunity awaits,
Carl Delfeld.
