NEW YORK (TheStreet) -- When push comes to shove, the vast majority of investors -- professional and otherwise -- tend to stick with the herd. As a result, statistics show that the long-term performance of most investors tends to be mediocre at best.
Truly independent thinking is a rare commodity on Wall Street and everywhere else. What's more, the explosion of 24-7 media consumption threatens to fuel more groupthink, which can have disastrous results.
In contrast, consider the actions of business mogul John Malone and his team at
, which launched a surprise effort to buy
Barnes & Noble's
about a year ago, when the company was being dismissed by many as road kill on the digital media highway. Liberty wound up with preferred stock that's convertible into common shares worth a 16.6% stake in Barnes & Noble.
Now consider this week's news that Barnes & Noble's Nook e-reader business will receive hundreds of millions of investment dollars from tech giant
. This gave new credibility to an effort by the venerable bookstore chain to reinvent itself for the digital age. For investors paying close attention, the news also bolstered the reputation of Malone.
Malone's investment looks prescient now after shares of Barnes & Noble soared by more than 52% on Monday on news that Microsoft is buying in to gain a foothold in the market for e-reader tablet devices. But like many great investments, Liberty's pursuit of Barnes & Noble looked like pure insanity at the time.
Books, for obvious reasons, were one of the first products to be widely purchased on the Web at
and other sites, and the drumbeat of dire headlines coming out of the bookstore business has long sounded like a death march. Barnes & Noble's chief rival, The Borders Group, filed for bankruptcy months before Liberty made its move, and most people thought Barnes & Noble was next.
The Nook, meanwhile, looked like a feeble attempt by the brick-and-mortar chain to keep its hat in the ring with Amazon's Kindle and
iPad as those products took off and e-reading went mainstream.
Liberty's investment in Barnes & Noble flew in the face of conventional wisdom, and for that reason, it's an example of the most admirable quality of the truly great investor: the ability to exercise independent command of the facts and invest money in a thesis that runs counter to the prevailing views of the masses.
Human beings are social animals. We find comfort in being part of a group, and we're especially prone to seeking comfort above all else when it comes to our money.
Unfortunately, investments that are widely embraced by the herd tend to be priced expensively, because everyone wants a piece of the action. The cheapest investments are those that are shunned by the herd, and let's not forget that the whole point of investing in securities is to buy them at a low price and sell them at a higher price.
Many people on Wall Street talk a big game about contrarian thinking, but in reality, the financial industry is a cesspool of so-called groupthink.
Of course, it's easier to swim against the tide as an investor when you're John Malone. The guy at the poker table with the biggest stack of chips in front of him tends to be the most dangerous, and Malone is one of those guys.
estimates his net worth last year at $4.5 billion, and he recently surpassed Ted Turner as the largest individual private landowner in the U.S. He's credited as a founder of the modern cable telecommunications business, and he's renowned as a tough negotiator and a financial wizard with a special knack for avoiding taxes.
In another display of contrarian investing, Liberty provided financing for
Sirius XM Radio
in the depths of the financial crisis in 2009, rescuing it from bankruptcy. The satellite radio company was saddled with debt after muddling through an arduous regulatory process that merged the only two players in the satellite radio industry. Its fortunes were dependent on the auto business, which was collapsing as the economy sank into recession, and investors were fleeing for the exits.
That was then. This is now.
The auto market is rebounding, and Liberty's financing deal left it with a sizeable stake in a cash-rich subscription business that faces no competition from other satellite radio providers.
Sure, the business faces a myriad of threats from wireless Internet proliferation and so forth, but Liberty's investment has already achieved spectacular returns, and it's now locked in a struggle with Sirius XM over control of the satellite radio empire.
Not everyone can invest like Malone, but anyone looking for a place to start finding bargains can follow his moves and those of other large investors they admire.
Many people follow the investments of Warren Buffett's
, and the markets often react quickly when his investments are disclosed. However, there are other investors out there with track records of independence and superior performance. Their holdings are often disclosed to the public in regulatory filings with the
Securities and Exchange Commission
, and these can serve as a fruitful starting point for the aspiring stock-picker sifting through mountains of publicly traded securities in search of value.
Maybe you'll feel more comfortable buying a cheap stock that's fallen out of favor if you know that someone like John Malone owns it too.
A the time of publication, Worden and/or his firm were long MSFT, AAPL, AMZN and BRK-B.
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