A Little Sleuthing Can Lead to Big Profits

Williams and his small staff spend their lives hunting in newspapers and trade journals around the world for down cards, and stacking them in piles around his office. He visits large clients like General Motors(GM Quote) and Fidelity Investments about four times a year to deliver and interpret the results, and he publishes them in a quarterly magazine called Anomaly to all other clients. Then, he throws his clippings away and starts collecting again.

At investment firms, he says he talks mostly to portfolio managers, not analysts. "Analysts are our enemy," he said. "They only want numbers. We don't have numbers. We are after symbols that have the power of myth."

Williams believes that a variety of down cards today reveal that both public and professional investors are overly focused on risk rather than opportunity. In the late 1990s, he said, the concept of risk virtually disappeared. Now, companies for the first time are hiring chief risk officers to sit in meetings at parity with chief financial officers and chief executive officers; additionally, bonds and gold have soared while stocks have plunged. "The hunt for opportunity is missing," he says. His interpretation: It will soon be time to look for the next bull market, possibly in such commodities as natural gas and water, along with gold and even base metals like nickel.

He has taken his own advice in a small hedge fund that his firm runs to test its ideas in the marketplace. "That's why we are long stocks and short bonds; we were early, but we anticipate that risk-taking will return," he said.

Anticipating an Early Rally

For a practical example of the value of down cards, consider the trading following the terror attacks in New York and Washington on Sept. 11, 2001. During the week the U.S. stock exchanges were closed, most experts predicted that the bearish trend already in place that summer would accelerate once trading resumed. That was true for the week of Sept. 17-21, but on Sept. 24 an entirely new, sharp upward trend began that was impervious to continued terror and anthrax scares for three months.