You Won't Make Money Doing What Everyone Else Does

Weekly Issue

Think about all the emails you get in the course of a day promising special insider knowledge, rapid riches, monster gains, 90% win rates, and membership in exclusive clubs.

Now take a minute to consider how many of these emails go out every day.

Hundreds of thousands get them, tens of thousands read them, and thousands sign up.

Almost everybody is prone to the same pitch of big money and membership in an elite tribe.

If everybody is doing the same thing in pursuit of the same goals, there is one truth most people do not bother to explore.

Whatever that thing is, there is someone on the other side of the equation that is making a fortune.

When it comes to finance, there seems to be only a few schools of thought that lock in the American imagination.

One is the school of the High Priest of Indexing who suggests just plowing money into the broader indexes no matter what happens and holding on forever.

If you are young enough for time to work its magic, there is much to like about this school.

As long as average returns and time will get you where you want to go in life, this school is reasonable.

Then there are the get-rich-quicker, that army of day traders, penny stock dreamers, Pre-IPO fantasizers, Death of America hoarders, options schemers, sports gamblers, Instant Experts, and nattering Nincompoops.

This school has excitement, dreams, hopium, elegant daydreams, and a very low probability of success.

These two groups make up a huge percentage of individual investors.

Add in the Buffetologists who think that they can clone Warren and Charlie’s success by buying the flavor of the day great companies, and we have most of the investing population.

Where does that leave investors who want to do better? Indexing is not enough, especially when the starting valuation makes long-term outcomes much less attractive.

How about those who want to make money in the markets and have tried all the schemes, systems, and guaranteed strategies?

Let’s start by reframing the picture.

We need to stop thinking of ourselves as some BSD (see Liar’s Poker by Michael Lewis) trader dripping in bling.

Forget Gordon Gekko.

Focus on becoming more like Lawrence Garfield.

If you have never watched the 1991 classic Other People’s Money with Danny DeVito, I suggest that you do that ASAP.

If you watch nothing else, watch this clip where Garfield, known as Larry the Liquidator, explains corporate raiding with lessons right out of Ben Graham’s books.

No one does this type of transaction anymore. The companies that trade below liquidation value are too small to offer a multi-billion fund enough of a profit opportunity. These companies are in boring old industries and have nothing to do with AI, quantum computing, or any of the other hot topics of today.

They are also small and illiquid.

It is hardly worth the time it takes for one of the big players to take a stake, and that at best would yield low seven-figure profits if they bought and liquidated the entire company.

It is worth it for us mere mortals. Only a handful of the companies we uncover will actually be liquidated.

If history is a reliable guide, several of them will be taken over at a higher valuation.

Some will do nothing.

Some will see business improvements that cause the valuation to re-rate higher.

A handful will get worse.

Focusing on credit as well as valuation helps limit the downside on the losers.

Our research and real-world experience show that focusing on liquidation value and credit delivers market-crushing long-term returns.

It requires patience, a strong stomach, and the willingness to be a buyer when everyone else is selling and selling when everyone else loves the markets.

It is unlikely that anyone else will be doing this.

You will be left out of barroom braggery about the massive winning trades that have been executed and the company they found (via a barrage of “buy now” emails) that is going to unlock the secret of fusion energy by next month and use this endless energy supply to develop artificial general intelligence and weapons systems that will cause the Chinese politburo to experience fear so great they all join the Republican party.

In a world where everyone proves their uniqueness by trading the same handful of stocks, you will actually be unique.

The question you have to ask yourself is: do you want to make money or just be a part of the same game as everyone else that really is rigged in favor of a select club in which you are not a member?

Or in the vernacular of my youth, “Do you want to make money or just &*&^ around?”

For the individual investor, the two important figures to study and emulate are not the heroes we see in the papers all the time.

As much as I admire him and share his love of reading and allergy to stupidity, it is not Charlie Munger.

It is not Warren, Stanley, Bill, Elon, or Michael either.

Although I had to think about it for a minute or six and ended up ranking him just below the most important, it is not Peter Lynch.

Hetty Green was also pretty high up on the list but also just misses the top spots.

It is not Ben, Marty, or Seth either. The two most important figures who use their work and methodologies to make money.

The two most important figures for individual investors to study and emulate are Larry the Liquidator and Mr. Womack the pig farmer.

If you follow the lessons and methods of these two greats, it will be difficult to not make money.

I want to introduce you to Mr. Womack. While few know of him, Mr Womack may well be one of the most important figures in the annals of market history.

Few have met him.

Fewer have paid attention to the lessons he imparts.

Those who have almost certainly made more money than those who ignored him and they have definitely had more time to enjoy the things that are really important in life.

The world was introduced to Mr. Womack in 1978 in a Fortune Magazine article written by John Train, an investment advisor and author of some import. We will have more on him in a minute.

I will let Mr. Train tell the story:

Everybody who finally learns how to make money in the stock market learns in his own way.

I like this tale of his own personal enlightenment sent in by reader Melvid Hogan, of Houston:

“Right after I was discharged from the Army at the close of World War II and went into the drilling-rig building business, on the side (and at first as a hobby) I began buying and selling stocks. At the end of each year I always had a net loss. I tried every approach I would read or hear about: technical, fundamental and combinations of all these… but somehow I always ended up with a loss.

It may sound impossible that even a blind man would have lost money in the rally of 1958 – but I did. In my in-and out trading and smart switches I lost a lot of money.

But one day in 1961 when, discouraged and frustrated, I was in the Merrill Lynch office in Houston, a senior account executive, sitting at a front desk, whom I knew, observed the frown on my face that he had been seeing for so many years and motioned me over to his desk.

“Would you like to see a man”, he asked wearily, “who has never lost money in the stock market?”

The broker looked up at me, waiting.

“Never had a loss?” I stammered.

“Never had a loss on balance”, the broker drawled, “and I have handled his account for near 40 years.” Then the broker gestured to a hulking man dressed in overalls who was sitting among the crowd of tape watchers.

“If you want to meet him, you’d better hurry”, the broker advised. “He only comes in here once every few years except when he’s buying. He always hangs around a few minutes to gawk at the tape. He’s a rice farmer and hog raiser down in Baytown.”

I worked my way through the crowd to find a seat by the stranger in overalls. I introduced myself, talked about rice farming and duck hunting for a while (I am an avid duck hunter) and gradually worked the subject around to stocks.

The stranger, to my surprise, was happy to talk about stocks. He pulled a sheet of paper from his pocket with his list of stocks scrawled in pencil on it that he had just finished selling, and let me look at it. I couldn’t believe my eyes! The man had made over 50% long-term capital-gain profits on the whole group. One stock in the group of 30 stocks had been shot off the board, but others had gone up 100%, 200% and even 500%

He explained his technique, which was ultimate in simplicity. When during a bear market he would read in the papers that the market was down to new lows, and the experts were predicting that it was sure to drop another 200 points in the Dow, the farmer would look through a Standard & Poor’s Stock Guide and select around 30 stocks that had fallen in price below $10 – solid, profit-making, unheard-of, little companies (pecan growers, home furnishings, etc) and paid dividends. He would come to Houston and buy a $25,000 package of them.

And then, one, two, three or four years later, when the stock market was bubbling and the prophets were talking about the Dow hitting 1500, he would come to town and sell his whole package. It was as simple as that.

During the subsequent years as I cultivated Mr. Womack (and hunted ducks on his rice fields) until his death, I learned much of his investing philosophy. He equated buying stocks with buying a truckload of pigs. The lower he could buy the pigs, when the pork market was depressed, the more profit he would make when the next seller’s market would come along.

He claimed that he would rather buy stocks under such conditions than pigs because pigs did not pay a dividend. You must feed pigs.

He took a “farming” approach to the stock market in general. In rice farming, there is a planting season and a harvest season; in his stock purchases and sales he strictly observed the seasons. Mr. Womack never seemed to buy a stock at its bottom or sell it at its top. He seemed happy to buy or sell in the bottom or top range of its fluctuations. He had no regard whatsoever for the old cliché – Never Send Good Money After Bad – when he was buying.

For example, when the bottom fell out of the bottom in the market of 1970, he added another $25,000 to his previous bargain-price positions and made a virtual killing on the whole package.

I suppose that a modern stock market technician could have found a lot of alphas, betas, contrary opinions and other theories in Mr. Womack’s simple approach to buying and selling stocks. But none that I know put the emphasis on “buy price” that he did.

I realize that many things determine if a stock is a wise buy. But I have learned that during a depressed stock market, if you can get a cost position in a stock’s bottom price range it will forgive a multitude of misjudgments later.

During a market rise, you can sell too soon and make a profit, or sell on the way down and still make a profit. So, with so many profit probabilities in your favour, the best cost price possible is worth waiting for.

Knowing this is always comforting during a depressed market, when a ‘chartist’ looks at you with alarm after you buy on his latest “sell signal”.

In sum, Mr. Womack didn’t make anything complicated out of the stock market. He taught me that you can’t be buying stocks every day, week or month of the year and make a profit, any more than you could plant rice every day, week or month and make a crop.

He changed my investing lifestyle and I have made a profit ever since.

As for Mr. Train, he was an author of some renown and his investment scribblings include Money Masters, The New Money Masters, Famous Financial Fiascos, and Investing for the Long Run.

He was also close friends with Alexander Solzhenitsyn, who for my mind is one of the most important literary and heroic figures of the last 100 years.

Their friendship reflected Train’s broader worldview: a belief in personal responsibility, skepticism of utopian systems, and admiration for individuals who combine intellectual rigor with moral courage.