As a contrarian investor, advisor John P. Elwood has carved out a niche turning long-term losers into winners. Now in his 40th year in the business, he’s a traditionalist who still refers to clients as “customers.” Old-fashioned stockbroker? Yes. Apologetic? Absolutely not.
“It’s what I do,” says the 66-year-old Elwood, a first vice president with RBC Wealth Management in Chicago. “It’s what I do well.”
Elwood, who has $50 million in assets under management, searches for companies with good fundamentals whose stock price has slid from its peak roughly seven years earlier. Seven years isn’t “magical” or “Biblical,” as Elwood puts it, but it tends to parallel business cycles.
Elwood’s investing philosophy dates back to the mid-1970s when he studied the stock charts of 250 companies from 1920 to 1970. His takeaway? “The growth of U.S. stocks is marked by some rather lengthy cyclical departures, and many companies go through this pattern two, three and four times in their history,” he says. “It became hugely apparent that cyclicality is the norm and that seven years is a good number to play off of.”
In the years since, Elwood has demonstrated that long-term losers aren’t always long shots. In the late 1990s, for example, he made good bets on oil, gold and international equities by positioning assets in their direction.
Gold rose, oil rose and international equities came back into favor.
“I don’t wait for someone to ring the bell,” Elwood says. “When they ring the bell, it’s way late.”
What does his contrarian approach suggest about investing strategies today? It’s back to the future with sectors that peaked in 2000: technology, large-cap growth stocks, pharmaceuticals and telecommunications. Meanwhile, he views commodities and the “energy complex” as bubbles that are about to burst. “In my mind, this is an extension of excesses,” he notes. “This is somewhat akin to what happened to technology, media and telecommunications — and I think we’ll see it in 2009.”
Elwood’s firm won’t permit him to identify particular companies he’s investing in or to reveal his track record, which he describes as “very adequate.” Specifically, he says the years from early 2000 to late 2006 were the best seven years he’s ever had in the business. Why? He didn’t own one technology stock. The most difficult period: mid-1998 to mid-1999, when he was buying what was out of favor while watching the excesses mount in large-cap growth and Internet stocks and the “mania” that accompanied the tech bubble.
It’s notable that in 2000, when Elwood was undergoing an admittedly tough period because he declined to participate in the heady market, he was awarded the Dalbar Financial Professional Seal with clients giving him the highest rating possible for the quality of his advice.