Money manager Robert Kleinschmidt thinks twice about companies that have been beaten up by the market mob.
Robert Kleinschmidt describes himself as a contrarian, but the thing that strikes you about him immediately is that he's a kidder. He likes steering his analytical meetings with jokes, showing off his acid-tongued wit whenever there's a chance.
"There's too much wine in Europe," says one of his portfolio managers during a discussion about commodities.
"And too much whining," Kleinschmidt fires back.
One thing that characterizes everybody at his firm, Tocqueville Asset Management LP, where he is president, CEO and CIO, he says, is that they all have an iconoclastic streak and a tendency to question authority, whether the question is economical, cultural or political. "When I read political pundits, for example, say with such certainty, when Karl Rove resigned, and I listen to them deconstruct the Rovian era in the White House, I ask, 'How do they know that?' 'What makes them think they understand what goes on behind closed doors? How do they trust the sources they got?'"
His intuition about market psychology is one of the reasons some analysts are fascinated by Kleinschmidt, who has a reputation for picking out-of-favor or beaten up sleepers in the stock universe, keeping a keen eye not only on the cold abstract numbers to reveal the secrets of a company's success-but also on the trickier question of how investor sentiment might have unfairly smacked a stock's price around. His sense of these "animal spirits," a phrase he attributes to John Maynard Keynes, leads him to gut decisions that might make some scratch their heads.
To wit: He recently bought a big stake in biotech company Amgen, about the same time several analysts were slashing their ratings to "sell" following a slew of FDA health warnings and Medicare reimbursement cuts on the company's blockbuster anemia drugs. In the past, he has gone for unloved names like Schlumberger when they were in the doldrums to watch them shoot up. He still holds onto oil company Murphy Oil Corp., his top holding, whose stock price has shot up from under $20 in 2000 to its current hovering space of around $60. Though he planned on paring it back, which he often does when he feels a sector has run its course, today he thinks it's a perfect acquisition target with its interesting collection of assets, he says.
But his sense has paid off handsomely more than a few times, and earned his Tocqueville Fund a five-star rating by Morningstar. The fund tracker puts his five-year annualized return at 16.6% through Aug. 24, 2007, whereas the S&P 500 turned in 11.5%. From January 1992, around the same period Kleinschmidt arrived at the firm, the fund had a 12.5% annualized return, says Morningstar. (It is now worth about $485 million, and the firm as a whole manages $6 billion.)
One of his biggest successes in the past few years has been the metals and mining area, which he began buying in 2002 and 2003. Later on, he moved toward the maligned technology sector, buying companies such as Microsoft and Intel when they were being dismissed as growth stocks that were no longer growing (now the pendulum has swung back, and they have recently popped up in a lot of value portfolios).
More recently, a constellation of drug companies have appeared in Tocqueville's SEC filings, right about the same time that naysayers have decried the empty drug pipelines, the threat from generic medicines, and a clutch of safety warnings about the adverse side effects of Big Pharma's superstar drugs. And, though Kleinschmidt hasn't bought anything in it yet, he even thinks its time to start doing homework on the housing sector. Housing!
"Why?" he asks. "Because everybody hates them."