Everyone loves to hear good news. Everyone loves to hear why they're right. But if you want to make money in the market, as I did for a decade at Neuberger Berman, then you need to listen to why you might be wrong about a stock, and here's why.
Convincing yourself that your original investment thesis is correct is perhaps one of the easiest and most dangerous things you can do. It's natural to want your beliefs reaffirmed by others, especially when your money's at stake. The echo chamber of affirmation can be a terribly destructive thing to your portfolio. To really understand why you're buying a stock, you need to be challenged. You need to hear why you could be wrong.
I'll give you an example. At Neuberger, Team K held a significant position in Allied Capital. When noted investor David Einhorn of Greenlight Capital announced he was short the stock, we didn't dismiss his claims as wildly out of hand (and remember, this was at the beginning of the credit crisis, well before Bear and Lehman collapsed).
Instead, we sent an analyst over for a strategy session of our own, asking hours worth of questions so we could get a better understanding about the company. It ultimately made us better investors.
Tuesday on ""The Strategy Session," we did something similar. We invited Dave Gentry, the president of RedChip Companies, a firm that claims to be an independent research company—but in my opinion is more like actually a paid consultant (a view Gentry disagreed with)—to defend his view that Chinese reverse mergers offer value.
Herb Greenberg has been out in front of this story and challenged Gentry's views and the role of his company. The segment got heated—and there is an extended version online —but in the end, both sides were aired, and investors were left with the proper information to make a decision.
For what it's worth, I wouldn't touch these things with a 10-foot pole. And judging from the emails, which came flooding into the show, I am not alone in my assessment.
Randy in Oregon wrote:
"Great interview with Dave Gentry. I have bought and sold L & L Energy three times this past year and learned from the experience not to trust China stocks (too much info hidden from investors, too much info hidden by the company). You guys did a great job showing the questionable info put forth by RedChip."
By learning more about the companies that promote reverse mergers, Randy actually made himself a better investor, which is something we try to do on The Strategy Session everyday.
Aside from the big brawl over Chinese reverse mergers, there was some other news on our show, including a rare interview from the President of Verizon.
Two very interesting points came from this segment: one, he seemed to indicate a potential bundling of FIOS and wireless could be in the offing, and two, he said that Verizon would not subsidize AT&T customers.
It will be interesting and instructive to investors if the latter actually happens. I could easily see a scenario where the Verizon caves, and that would obviously be bad for the company's margins.
Watch Gary Kaminsky weekdays at Noon ET on CNBC's "The Strategy Session."
Gary Kaminsky does not hold any equity positions.
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