In one particularly memorable episode from last season, Don and Peggy are working late in the office, and Don is hitting the bottle to deal with his latest personal crisis. During one scene, Peggy complains to Don that he doesn't express appreciation for her hard work and her contributions to the advertising agency. Don replies, "That's what the money's for." Yep, that is indeed what the money is for (although I would hasten to add that non-monetary rewards are extremely important and effective, so I can't recommend Don's playbook here). When it comes to investing, we are dealing with one pursuit that hands us an objective measure of our success 24/7. We can conduct the most thorough research in the world, but if that research is not translating into a portfolio that outperforms the market, then we can't call that success. We also need to make the fine distinction between measurement and evaluation. The former is constantly with us in the form of stock prices and portfolio values, but we need to view the latter over longer periods of time, quarters and years instead of days. The reality, though, is that if we could have achieved the same performance by investing in an index fund, then we are either wasting our time or needlessly paying commissions and fees to some investment professional. In a strong bull market, investors are especially prone to think that they are smarter than is actually the case when they are seeing their portfolio rise in value. If they aren't beating the benchmark (such as the S&P 500), though, then all they can claim is that they were along for the ride.
While Don Draper may be lacking a "true north" on his moral compass, he is a paragon of fidelity when it comes to his own business success. Draper understands the advertising business, and when you understand completely how something works, you gain a sense of when you need to break the rules. When his agency loses the major account of a tobacco company, Draper launches his own anti-smoking campaign. That's a form of jujitsu, or using your opponent's strength to gain your own advantage. Just because I wouldn't want my daughters to get anywhere near Don Draper doesn't mean that I can't admire his ability to get the job done at the office. I would hire him in a heartbeat to handle an ad campaign. As this applies to investing, I must stress my belief that Don's appeal is rooted in his business skill and not just his ability to attract some dumb luck. His understanding of--and insight about--his business are the qualities that allow him to be unconventional.
"If you don't like what's being said, change the conversation"
---Don Draper
The investment business is full of conventional thinkers, and I'll call them "The Conventionals." The Conventionals today will recommend a stock like Cisco Systems (CSCO, $20), the maker of computer networking equipment. Now, CSCO may actually be a good investment today, but what I want to know is where the Conventionals stood 20 years ago when the company was growing like kudzu. No, back then CSCO was too risky. Now that the stock trades at roughly a market P/E multiple and is down some 20% over the last five years, you might just want to wade in. That's fine, but you're not likely to see the blistering growth that the stock delivered in the 1990s. The Conventionals then were probably buying Eastman Kodak, because people will always need film for their cameras. They love to go rummaging in the dust bin of faded glory.
I have to give some credit here where credit is due, so I'll mention that The Motley Fool investment advisory service (http://www.fool.com) has a portfolio of recommended stocks they call "Rule Breakers." This is one of a number of subscription services that I use to generate stock ideas. As the name suggests, this service is all about finding those companies that are either remaking their industries or creating completely new industries. (Think of Fred Smith and FedEx.) One investment theme that I find especially interesting right now is the potential for natural gas as an energy source (if the White House would get out of the way). Westport Innovations (WPRT, $47) is a company I have mentioned before here. They make the technology that allows diesel engines to run on natural gas. The more established Cummins Engine (CMI, $128) already has a strong presence making truck engines, and they have a joint venture with WPRT. As an investment, CMI is partially a play on China's growth, and the Chinese may very well beat us in adopting natural gas as a fuel source for heavy-duty trucks. Also, while the Conventionals are doing some bottom-fishing for the big pharmaceutical companies like Merck (MRK, $38) and Pfizer (PFE, $22), we might want to check out some of the biotechnology stocks like Celgene (CELG, $75) and Alexion Pharmaceuticals (ALXN, $89). Those are ideas for further research, and interested investors should perform the necessary due diligence and talk with their financial advisers to fully understand both the risks and the potential rewards.
I'll wrap this up with two caveats. First, CSCO, MRK, and PFE are great companies and may be rewarding as stocks. The point here is that investors who understand the risks--and can afford to take some risk with the growth portion of their portfolios--need to be aware that conventional ideas are conventional for a reason. The potential for big rewards always comes with the potential for major losses, so the unconventional ideas are not for everyone. Even those who can take the risks need to adhere to our rules for diversification. Second, when it comes to money, I am not at all suggesting that money is the chief measure of success in life. As long as we go about our business legally, honestly, and ethically, then money is just a yardstick for measuring our success at investing. More revealing of true character is what we do with our gains, and I have always believed that a person's checkbook says more about his character than what he does for a living or how much is in that checkbook. It is the love of money, not money itself, that is the root of all evil.
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If Don Draper is the archetype of the character who achieves successful ends through unconventional means, then another such example might be Hawkeye Pierce from M*A*S*H. Unlike Don Draper, Hawkeye actually has a firmly grounded moral center, and it is Hawkeye's view of the Korean War as immoral that gives us a character who continually thumbs his nose at military authority and protocol. (Don also has a history in the Korean War, which faithful devotees of Mad Men know all about.) Hawkeye and Trapper John are able to get away with their anti-establishment antics because they are so good at what they do--they are two of the best surgeons in the U.S. Army. Were it not for their skill in the operating room, they would have certainly faced court martial for numerous infractions and insubordination. While the television series is on in reruns, I am actually thinking of the 1970 movie, which is available on dvd. It's worth watching again if you haven't seen it in some time.
Mad Men returns with a special two-hour episode this coming Sunday, March 25th, on AMC (http://www.amctv.com/shows/mad-men).
Life is short. Get busy.
Jim
Disclosure/Disclaimer: My family members and/or I own shares of WPRT, CMI, CELG, and ALXN. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as investment advice or the recommendation to buy or sell any security.
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