Common Stocks and Uncommon Profits and Other Writings

CONTRARY, BUT CORRECT
Much has been written in the literature of investments on the impor-
tance of contrary opinion. Contrary opinion, however, is not enough. I 
have seen investment people so imbued with the need to go contrary to 
the general trend of thought that they completely overlook the corol-
lary of all this which is: when you do go contrary to the general trend 
of investment thinking, you must be very, very sure that you are right. 
For example, as it became obvious that the automobile was largely to 
displace the streetcar and the shares of the once favored urban railways 
began to sell at ever lower price-earnings ratios, it would have been a 
rather costly thing just to be contrary and buy streetcar securities only
on the grounds that because everyone thought they were in a declining 
stage, they must be attractive. Huge profits are frequently available to

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those who zig when most of the financial community is zagging, pro- 
viding they have strong indications that they are right in their zigging. 
If a quotation from Shakespeare was a vital force in formulating my 
policies on the matter, so also, strangely enough, was a popular song
from World War I. As one of the very thinning ranks of those who can 
still remember how the home front reacted in the stirring days of 1918, 
I might point out that in its excitement and enthusiasm for that war the 
American public had a naivete then quite different from its grimness 
about such matters in World War II, when the horrors of war were more 
clearly understood. Firsthand news of the casualties and the filth and the 
terror of those in the front lines had not yet permeated the continental 
United States in 1918. As a result, the popular music of the day was
filled with cheerful and humorous war songs in a way that happened on 
a much smaller scale in World War II, and not at all during the Vietnam 
fiasco. Most of these songs came out in the form of sheet music for 
pianos. One of these songs, published with a picture of a proud mama 
looking down on parading soldiers, had the title, “They’re All Out of 
Step But Jim.” 
I recognized from the very first that I was running a distinct risk of 
being “out of step.” My very early purchases of Food Machinery and a 
number of other companies were bought “out of phase.” when their 
intrinsic merit was completely unrecognized by the financial commu- 
nity. I might be completely wrong in my thinking and the financial 
community could be right. If so, nothing would be worse for my clients 
or myself than letting my firm convictions about a particular situation 
lock up a sizable amount of funds unprofitably for an endless period of 
years because I zigged when the financial community had zagged, and
I had been wrong in doing so. 
However, while I realized thoroughly that if I were to make the
kinds of profits that are made possible by the process that I have 
described as zigging when the rest zags, it was vital that I have some sort 
of quantitative check to be sure that I was right in zigging.