September16,2019 BARRON’S 27
BookExcerpt:ArielInvestments’RupalJ.Bhansaliexplainshowtoprosper
byrunningagainstthecrowd.SavvybetsonMicrosoftandFrance
TheMakingofa
ContrarianInvestor
RUPAL J. BHANSALI ISCHIEF INVESTMENT OFFICER
andportfoliomanagerofinternationalandglobal
equitystrategiesatArielInvestments,andamem-
beroftheBarron’sRoundtable.Nowshecanadd
another lineto herresume—author ofNon-Con-
sensus Investing: Being Right When Everyone
Else is Wrong,tobepublishedOct.1byColumbia
UniversityPress.Theexcerptbelowisfromasec-
tion entitled NineQuestions to Nirvana, or “lit-
mus-test”questionsthatinvestorsshouldaskand
attempt to answer before purchasing any stock.
Nine Questions to Nirvana
- Where has apathy or pessimism degenerated
into neglect?
IfItoldyouthatacountrywhichinstitutedthe
shortestworkweekandleviedamongthehighest
corporatetaxratesofferedyousomeofthefinest
investment opportunities in the developed world,
you would not believe me. Suppose you did some
additionalresearchanduncoveredtwomoretrou-
blingfacts:Despitethehighestpublicexpenditure
(57%)relativetoGDP,thiscountryhadamongthe
highest unemployment rates (10%). And despite
repeatedfiscalstimulusandbudgetdeficitssince
1981, it experienced among the lowest economic
growth rates in the OECD.
Knowingallthat,youwouldthinkofthiscoun-
try as a loser and stay away. After all, how could
such an economy, steeped in socialism and profli-
gacy,offercapitalisticorprofitpotential?Butthat
would bea mistake.Pessimism offersfertilein-
vestmentopportunitybecausebadnewsispriced
in,whilegoodnewsisnot.ThecountryIamrefer-
ring to is France, and yes, it is home to many
world-classcompanies.Ifyoucaretolook,youwill
find many French companies whose products we
love and willingly pay upfor.
Fromluxurygoods(LouisVuitton,Hermès,Gu-
cci)toluxurybeverages(FrenchChampagne,Chi-
vasRegalwhiskey)tohigh-endVariluxlenses(Es-
silor)tostate-of-the-artelectricalwiringsolutions
(Legrand) to exotic perfumes (Christian Dior) to
prestigecosmetics(L’Oréal)topremiumtires(Mi-
chelin)tohigh-techaircraft(Airbus,DassaultAvia-
tion,Safran,Thales)tocutting-edgesoftwareand
encryption technology (Dassault Systèmes, Gem-
plus), France has produced many outstanding
products and enterprises.
Manyofthesecompaniesmaynotbehousehold
names,buttheysellhouseholdproductsyourecog-
nize. Ifyou use a cell phone or a credit card,
chancesareyouhaveusedaGemplusproduct,be-
causetheymaketheSIMcardortheCHIPcard
thatauthenticatesyouastherightfulowner.Ifyou
driveacarorrideinaplane,youareexperiencing
the3-DengineeringdesignsoftwaremadebyDas-
sault. Ifyou wear prescription or high-end eye-
wear, chances are your lenses and the protective
coatingsthatmakethemsmudge-freeorscratch-
resistant were made by Essilor.
Youarealreadyfamiliarwiththeothercompa-
nies mentioned above,so I won’t describe them.
But did you know that as ofDec. 31, 2018, the
stocks ofAirbus and Kering (parent ofluxury
brandGucci)hadgoneupeightfoldsincethemar-
ketbottominMarch2009,afeatmatchedbyonly
a handful ofstocks in therest oftheworld? Did
you know that L’Oréal quadrupled over that pe-
riod,whileitsU.S.counterpart,Procter&Gamble,
barelydoubled?DittoforEssilor,whichisupfour-
fold, and Dassault Systèmes, up sevenfold. You
would be hard pressed tofind so many successes
anywhere,letaloneinthelarge-market-capitaliza-
tion range.
The point is, with approximately 40,000 listed
stockstochoosefromintheworld,yourbeststrat-
egyistolookforcountriesorcompaniesthatsuf-
ferfrom disinterest or disregard. The wider you
castyournet,themorefishyouarelikelytocatch.
Thisiswhyitmakessensetonotrestrictyourin-
“Whenfailure
ispricedinbut
successisnot,
therisk/reward
balancebe-
comesquite
attractive.”
RupalJ.
Bhansali
vestment choices to your home country but con-
sidergoingabroadwheremanybest-in-classcom-
panies exist. Sure, investing internationally can
comewithmoreriskbutitcanalsoreduceriskvia
diversification as well as offer opportunity.
- Where is failure priced in, but success is not?
Most investors devoteenormous timeand at-
tentiontosuccessstoriesandwantapieceofthat
success,oftenatanyprice.Thisisusuallyarecipe
nottomakemoneybuttoloseit.Hereismynon-
consensus advice: You are better offresearching
failure. Two benefits: It will sharpen your anten-
naefor what can go wrong; but also, ifit has al-
ready gone wrong and your research tells youa
reversalisathand,youcanscoreanupsetvictory.
This was the setupwhen I researched Micro-
softin2012.Itwasawell-knownbut,inmyopin-
ion,notwell-understoodcompany.Theconsensus
viewatthetimewasthatApplewouldbethewin-
nerandMicrosofttheloser.Thebearspointedout
thatunlikeApple,Microsofthadneitheracompel-
lingmobileoperatingsystemnoracompellingde-
vice,andsincethesmartphonewasbecomingthe
handheld computer of choice, Apple’s success
would come at Microsoft’sexpense. Moreover, as
desktopPCsbecameobsoleteanddeclined,Micro-
soft would suffer as it derived a large portion of Joel Arba
je (book); ioulex (Bhansali
)