All companies have a risk of operational disappointments (in revenues, earnings, etc.). In addition, all stocks have stock price risk—namely, the risk that the current stock price might be too high, regardless of a company’s future operational performance. Companies perceived by investors to have lower operational risk tend to have higher price risk, and companies with higher operational risk tend to have lower price risk. Contrarian investors, such as ourselves, see the prospects for better returns in the higher operational risk/lower price risk category and, therefore, we aren’t surprised when some of our companies disappoint operationally. Just as a successful football quarterback understands that despite his best efforts he may throw incomplete passes and even an occasional interception, we understand that operational disappointments are an inevitable part of investing.
Oct 1999