Laszlo Birinyi moves against the currentMarch 9, 2012: 5:00 AM ET
Birinyi is an unusual (and successful) brand of contrarian - and he's feeling relatively bullish these days.
Interview by Jon Birger, contributor
FORTUNE -- It's impossible to capture Laszlo Birinyi's investing style in a simple phrase. Birinyi, 69, who manages $400 million in private accounts and pens a monthly newsletter, operates on feel, knowledge of market history -- and a healthy suspicion of prevailing wisdom. That often leads him to do just the opposite of what the crowd (including the press) subscribes to. However you want to define his philosophy, Birinyi has beaten the market. Over the past 10 years, his separately managed accounts have averaged 5.5% annual returns vs. 2.9% for the S&P 500 (SPX), according to his firm Birinyi Associates. We met with Birinyi in his Westport, Conn., offices to discuss his approach and some of his favorite stocks today. Edited excerpts:
Where do you think the stock market is headed?
I think we're in a protracted bull market. And if I'm correct about that and you look at the market historically, then this will go on for another several years. We're currently in the third leg of a four-leg bull market. The first and last phases are usually the most lucrative.
Why do you think we're in a protracted bull market?
Based on the way it started in 2009. We were up 20% in the first 15 days. There was a certain kind of thrust that reminds me of 1982, when the Dow (INDU) went from 777 to 1000 in a matter of months. This time, we had a very strong start coming out of a very pessimistic environment. And if you look it up, you'll find that the day the market bottomed, the Wall Street Journal headline was DOW 5000? [The Dow ended 2009 at 10,428.]
You complain about the press being wrong a lot -- but it seems our mistakes help you make money.
Correct. I probably read the financial press more closely than anyone outside the financial press itself. Every day I go through and clip and save a range of stories from Fortune, the Financial Times, or whatever. I have books of these going back to 1962, and they give me a sense of the mood of the time, the issues, the attitudes.
How do you use those insights?
Here's an example: The longest stock market story that the New York Times ran in 2010 was published on June 30, 2010. The headline was STOCKS SLIDE AS WEAK REPORTS PILE UP. The story was extremely bearish, talking about how bad things are. Well, June 30 turned out to be the absolute bottom for the stock market in 2010. The S&P rose 22% the rest of the year.
So media negativity is a buy signal?
Yes, if the mood is overwhelmingly negative, that encourages me. But it can't be just a sound bite or a story on page B4. In this case, it was the Times's longest business story of the year.
Since 1962, there've been eight bull markets. Financials have, on average, outperformed the S&P by 12 percentage points during each of those bull markets. Historically, 45% of the gains that bank stocks make come in the first two months of a bull market. So it's foolish to stay with them. Last year we kept telling people, Don't buy financial stocks. Financial stocks are up a little over 100% since March 2009, but 75% of that came in the first 10 weeks of the bull market.
Why do you think the financials outperform early and underperform late?
I have no idea. What I know is that it keeps happening. The strategy has worked seven out of the last eight bull markets -- 1990 being the exception.
It's interesting that bank stocks have lagged so dramatically when investing experts constantly talk about how correlated everything has become.
Asset classes may be correlated, but individual stocks are not. No matter what the newspapers may say about how much harder it is to pick stocks these days, it's really not. In the fourth quarter of last year, 162 S&P stocks had returns at least 50% higher than that of the index; 95 stocks had returns double the S&P.
You like Research in Motion, though BlackBerry is losing market share and really hurting. Why bet on a rebound?
They've got a lot of loyal users, a lot of patents, and a real brand. I compare it to Apple (AAPL). I recommended Apple at $7 in 1997 when nobody liked that stock, either. Now, I'm not looking for RIM (RIMM) to go to $400, nor do I see it as a core holding. But I like the fact that nobody else likes this stock, yet the business is still there.
What else do you like?
We bought a lot of Chipotle Mexican Grill (CMG). The stock is incredibly resilient. Whenever the company has missed its earnings, the stock may react negatively at first, but it always seems to recover within a week. Every time it trades down, it gets bought up by the people who wish they'd bought it earlier.
Any others that excite you?
Amazon.com (AMZN). I actually like the fact that they're sacrificing short-term growth for even bigger longer-term gains. They may be losing money on every Kindle sale, but they're willing to do that to open a new portal for shopping.
This article is from the March 19, 2012 issue of Fortune.