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Chalk it up to human nature: We want to be liked, and we want to be highly regarded by our peers.
When investing, this inclination can prove limiting. To be liked and to be highly regarded means toiling along everyone else – doing what everyone else is doing. Unfortunately, superior high yield returns infrequently materialize in the crowds.
In 25 years of investing, my most impressive returns have nearly always materialized when I trudged along alone. I’ve made many investments that I’m sure lat the time left people sneering, or thinking me the fool.
For example, in the late 1990s, I was buying tobacco and consumer-good stocks when nearly everyone was buying anything Internet related. For more than a year, I looked like a fool, and at times I felt like one. Soon enough, though, I didn’t look or feel so foolish, as tobacco and consumer goods surged and Internet stocks faltered.
More recently, I wondered off the farm to add Omega Healthcare Investors (NYSE: OHI), a long-term care REIT, to the High Yield Wealth. At the time, Omega appeared to be a disaster in waiting: It’s debt level was running high and there were concerns that many of its tenants would be throttled by a cut-back in Medicare and Medicaid spending.
As to be expected, Omega’s share price was severely depressed.
I pressed ahead anyway. My analysis suggested that concerns were overstated and that there was value in Omega shares. Just as Important, the company’s CEO shared my outlook.
For the first few months after recommending Omega, I didn’t look particularly clairvoyant. Omega’s share price staggered about. I spent a good deal of time allaying concerns and justifying the purchase to readers. In time, my prognostication began to materialize: fear dissipated, the stock price rose, and the dividend payout increased.
Fast forward to today and Omega has returned 120% to the High Yield Wealth portfolio. And thanks to continual dividend increases, the yield on the cost basis has increased to 11% from 6%.
Of course, going against the crowd is easier said than done. There is, after all, the risk that the share price won’t recover. If simply buying on bad news guaranteed future success, everyone would do it, and the opportunity to capture superior return would vanish.
Most of the recommendations in the High Yield Wealth portfolio perform as expected out of the gate. But a few will sprint ahead, a few will lag; their shares will continue to depreciate. I tend to focus on these laggards in subsequent updates, because I recognize their potential to produce superior high yield returns.
There are a couple recommendations in the High Yield Wealth portfolio that I’ve been pounding the table for in recent months. I’m convinced they have the potential to generate returns similar to Omega Healthcare Investors.
To exploit the opportunity, investors need to be willing to tolerate appearing a little foolish in the meantime. Appearing foolish now in exchange for padding the brokerage account later is worth the trade-off in my book.
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