Don't follow the crowd

As I have talked many times, when there is panic with a feeling of blood in the street, there is likely a great opportunity that you may find some gems to pick up. This is so-called contrarian investment. You go against what all the other people [the herd, including those Wall Street (WS) analysts] are doing and act lonely at that time. More often than not, you will be the winner, not the herd! Let’s use an example I talked about here to illustrate this. A few years ago there was a major sell-off for Genzym, a very successful biotech company specialized in orphan drugs for rare diseases. The reason for the bloodshed for Genzym was that it had some recurring quality issues identified for some batches of its products and the FDA issued a warning for it. People got nervous and all were rushing to dump it, cutting the stock price almost by half. This is a typical WS herd behavior that they tend to sell first before asking. When I saw this, I became very interested in the stock and wanted to know what was going wrong with it. It turned out this was nothing fundamental at all but just some temporary issues that all the companies could run into at some point. I was pretty sure that the company would fix the problem and all the business would return to normal before long. Actually what was more unique to this problem with Genzym was that even the FDA acknowledged that there was no replacement for the product of interest and advised patients not to discontinue the treatment, since this was an orphan drug only Genzym was producing. So what was the concern? To me it was more of a psychological concern than anything material and it was a great contrarian buy for Genzym. Yes, I did so when Genzym was around $50. Guess what happened to the company?  It was bought up by Sanofi in less than a year with a price tag over $70 per share!! The lesson? Find gems during a crisis. I hope my blog may help you to target something interesting to you and I think I find another one. Stay tuned.