At first glance, you might not classify Benj Gallander as the investor type. His demeanour is too relaxed — in fact, he’s calm, glowing, and happy. He’s got a slight surfer-dude slur, and on the day of our interview he looked a lot like a Toronto hipster, with his ruffled hair, open sandals, and unbuttoned shirt. Perhaps Benj hasn’t changed a whole lot from his university days, during which he claims to have “majored in pinball, racetrack, intramural sports, and cards.” Not, he admits, a model student.
Arguably, that freewheeling nature is what makes Benj unique and has perhaps helped him be so successful in the market. It’s his youthful way of questioning — constantly asking “Why?” — that helps Benj uncover truths and capitalize on inefficiencies in the market. Throughout the interview, you’ll notice that Benj will sometimes ask questions aloud — “Is it a sector that’s potentially dying for some reason, or is it a sector that’s a necessity and will come back?” This is his mind at work. Unlike most of us, Benj’s brain hasn’t settled into a mature, biased, deep grey-matter state. Benj continues to question not only his own beliefs and actions, but those of the market, and the participants in it.
Benj is a contrarian. Contrarians often go against the herd, or against the majority. I say “often” because contrarians who actually beat the market cannot always indiscriminately buy when others sell and sell when others buy. They’d quickly go bust. Successful contrarians such as Benj make moves in the market based on logic rather than sentiment, and are usually proven right more often than they are proven wrong. Benj describes this contrarian approach as “buying good companies that have been beaten up but have the ability to make big gains at a reasonably fast pace.” By investing through a discriminate contrarian framework, Benj can buy low and sell high, and as a result enjoy consistently high returns at Contra the Heard.
It was in 1995 that Benj Gallander co-founded the Contra the Heard investment letter with his friend Ben Stadelmann. Finally, after coasting erratically through university (Western for his BA and Dalhousie for his MBA), globetrotting freely around the world, and working odd jobs here and there, it seemed that Benj had settled into a groove. Thankfully, Benj has stuck it out at his current job as president of Contra the Heard. He’s amazing at it. And he seems to be having so much fun. Through Contra the Heard’s President Portfolio, Benj has achieved a 19% annualized return since 2000, clearly overshooting the market. Benj’s five-year annualized return since 2010 is 28.9%. If in 2000 you had invested $100,000 alongside Benj, and bought all of his stock recommendations, your capital would have grown to $1,358,952.95 over a 15-year period. It should be no surprise that today Contra the Heard investment letter counts some of the most successful businesspeople in Canada among its most loyal readers.
I first came to know of Benj through the television show Market Call on Business News Network, BNN. This was also at the time when I still practised value investing, as derived directly from the concepts that both Benjamin Graham and David Dodd taught, and so I found parallels in Benj’s contrarian framework to that of value investing. I was so intrigued by Benj that I started to email him questions about particular stocks — RIM, Sears Canada, Manulife — to elicit his unique contrarian perspective before making my own moves in the market. Benj was approachable and responded back to me with advice that was bang-on each time.
When I emailed Benj in September of 2011 to ask if he would invest in RIM and if such an investment would fit his contrarian model, Benj replied the next day: “I wouldn’t make that bet. And not at that price, Robin. I don’t buy stocks over $25. There is a better chance for a stock to go from $2.50 to $5 than a stock to go from $25 to $50.”
Benj was so right. RIM, now BlackBerry, would soon crater to around $5. His advice, generously given, saved me money and heartache.
That back and forth on various securities lasted for years until just recently I asked Benj to be part of my book. He replied in his usual carefree way: “Sure, happy to do it. Let me know what time, Robin. Maybe I can even make us some bacon and eggs.” Regrettably, I didn’t take Benj up on his offer for breakfast, as I have no doubt that he’s as great a cook as he is an investor. And so, it was on a bitterly cold winter day inside Benj’s warm and welcoming Etobicoke home that I conducted my first interview for Market Masters.
Balance Sheet: a component of the financial statement that shows a company’s financials at a point in time (e.g., Q2 F2015). Main sections are Assets, Liabilities, and Shareholders’ Equity.
Black Swan: an occurrence that is extremely hard to predict. Term coined by Nassim Taleb.
Contrarian: an investor who usually bets against the market or “the herd.”
Debt: an obligation to repay principal, plus interest, to a lender (for example a bank).
Dividends: money distribution paid to company shareholders, usually on a quarterly basis (every three months).
Efficient Market Theory (EMT): the belief that markets constantly incorporate all available information into the prices in the market, and that the markets are therefore efficient.
Exchange-Traded Fund (ETF): an investment fund that holds a basket of stocks, bonds, or other securities. ETFs trade on the stock market.
Hedge Fund: a fund that is not restricted by the same limitations placed on mutual funds. Usually employs a wide range of investing strategies (for example, long/short and risk arbitrage).
Inflation: increase in the general price of goods and services in an economy.
Initial Public Offering (IPO): the first sale of a company’s shares to the market.
Interest Rates: the overnight rate, which is determined and controlled by a central bank. Overnight rates influence the prime rates at banks, which are applied to any loans or lines of credit.
Margin Account: an investment account that allows investors to buy stocks on loan, with the obligation to pay back, or with the possibility to receive a “margin call” to cover lost credit if the investments decline past a point determined by the brokerage.
Mean Reversion: when market asset prices, which fluctuate around an intrinsic value or price, come back to that intrinsic value.
Mutual Fund: a pool of money from a group of investors that is managed by a mutual fund manager. The manager makes investments in a mutual fund to grow that initial and subsequent capital.
Stock: an actual stake in a company. Can be purchased at any point in time during market hours on an exchange at the current bid/ask price.
Takeover: when a company acquires the controlling interest in another company.