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Going Against the Crowd

NEW YORK ( TheStreet) -- In his great work The Intelligent Investor, Benjamin Graham, the father of value investing, discussed the potential virtues of buying when others are selling, and selling when others are buying.

Graham acknowledged that this is very difficult for most investors to do. It entails going against what the rest of the investing crowd is doing, which is probably more difficult now than in Graham's era because of the up-to-the-minute information and opinions now available to investors.

To go against the crowd requires a very thick skin; it is the equivalent of having an unfavorable opinion on Facebook (FB), while other investors load up in anticipation that the stock may double from here.

To be a value investor is to be a contrarian at times -- identifying and buying stocks that are severely depressed and shunned by other investors. It meant buying stocks such as Gannett (GCI), Krispy Kreme (KKD), Denny's (DENN), Saks (SKS), Cabela's (CAB) and others when they were severely depressed, and few investors, including those on Wall Street, were interested.

While those stocks recovered and richly rewarded investors from their lows, all but Cabela's was at one time priced for bankruptcy. Denny's parent actually filed for bankruptcy many years ago, and the company that emerged had its own share of difficulties.

The business of identifying struggling companies is the easy part; successfully determining those that will turn around is much more difficult. After all, the herd is not always wrong, for sure; and to simply buy what others are selling just to play the role of contrarian is a recipe for disaster.

The value investor must be discerning, and that takes a great deal of research and ultimately a great deal of patience. It also takes the willingness to throw in the towel when you've made a mistake and the story does not play out as you'd believed it would. I've certainly made my share of mistakes.

There are a couple of beaten-down stocks I find intriguing now; both stocks have suffered dramatically, and although in my opinion, it would be premature to pull the trigger at this point on either, both are worth further scrutiny.

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