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George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Money Manager Stocks / Mutual Funds

Where Are the Customers' Yachts?

March 19, 2012

This headline could easily apply to Goldman Sachs today, as recently described by former employee Greg Smith. Actually, it is the title of a book written in 1940 by a former Wall Street employee named Fred Schwed, Jr. The title refers to a story about person admiring the yachts owned by bankers and brokers who asks where the customers' yachts were. Of course, the customers, who had dutifully followed the advice of the bankers and brokers, couldn’t afford yachts.

This just goes to show that there is nothing new about the attitude that Goldman Sachs employees were purported (probably accurately) to have about their clients. It was just as true in 1940--and likely has been forever--as it is now.

The point is that stockbrokers, investment bankers, financial planners and the like are in business to make money. And that money can only come from one place: the customers. There is nothing wrong with this.  In fact, it is the one of the basic tenets of capitalism. But it is crucial for investors to remember this and to ask “Why is this person trying to persuade me to make this investment?”

In many--hopefully most--cases, it is because the person promoting the investment really believes it is a good investment for you. But in most cases it is also because the person makes money by selling you the investment. It is up to you to understand the investment so that you can judge whether it is truly right for you.

We don’t mean to disparage all brokers, planners or bankers. There are many terrific ones out there who can help you make lots of money. Just keep in mind the old Latin motto “Caveat Emptor” (“buyer beware”). It’s okay for your broker to make money. Just make sure that you do, too.

(Anyone who thinks we are being too cynical should read Michael Lewis’ very amusing first book, Liars Poker, about his initial job as a junior investment banker. You’ll never listen to an investment pitch quite the same way again.)

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Don't Make Too Much of Price History

It can be tempting to look at a depressed stock and think, “it used to trade at 40 and now it’s at 8 – therefore it must be a bargain.” Unfortunately, the fact that a stock once traded at a higher price does not guarantee that it will ever get back there. One big reason that a stock trades so much lower than before: its earnings potential or assets have deteriorated. Without some fundamental improvement, the share price will continue to lag, or worse. Read More.

Market-Beating Profit: The 200+ Club

Turnaround stocks present a unique opportunity for savvy investors to buy in at bargain prices. Take a look at this list of just a few of our purchase recommendations that have realized a return rate of 200% or better:

* Bristow remains an our active purchase recommendation, currently as a "Hold," and 1,928% stock profit is as of 8/11/16.

Retail Turnaround Trio

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MoneyShow.com interviewed George to learn more about his favorite value stock picks for today's market. In "Retail Turnaround Trio," Steve Halpern highlights three of The Turnaround Letter's recently-profiled retailers: JWN, TIF and SPLS.

 

Putnam notes, "Well the retailing sector is undergoing very fundamental change as people move away from the bricks and mortar mall doors to buying more and more online but that's not going to wipe out all of the old-fashioned retailers. Starting the middle of 2015, investors just moved away from retailers en masse and a number of them are trading at about half the level they were a year ago. We thought some of the higher quality names that definitely will be survivors looked interesting."

 

Learn more about these three retail stocks poised for a turnaround.