Barron\'s - 16.09.2019

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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



  1. 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.



  1. 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


)

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