Another way to avoid the risk of traditional market exposure is to invest in misunderstood companies. For example, BP plc (ADR) (NYSE:BP) is a large cap integrated oil and gas company. The company is notorious for causing huge damage to the Gulf of Mexico in what has come to be known as the “2010 BP Oil Spill.” However, since then, BP has made a lot pf progress. They’ve worked with authorities to improve the Gulf situation, and they’ve somehow managed to increase revenue by 26% since that oil spill.
However, BP’s worries aren’t anywhere near over. As of April 1, BP management estimated it could spend as much as $42 billion in clean up, fines, and other liabilities due to the spill if lawsuits don’t go their way. The major civil lawsuit is in court right now, and will take a few more months to settle. However, I believe the market is already pricing in these worst case scenario fines without pricing in future growth. If you adjust for the roughly $13 per share in worst case scenario liabilities, BP plc (ADR) (NYSE:BP) shares are still 12% below their prices before the spill, even as they’ve growth revenue. Moreover, ever since 2011, when prices were actually roughly 10% higher than they are now, famed value investor Seth Klarman has had a sizable position in BP shares. Klarman has generated over 20% returns annually through his Baupost fund, and while you should never blindly follow an investor into a position, his position should definitely pique your interest.
In any case, if finding value is difficult, there is one more thing every prepared investor should do immediately.
2. Make Your Wish List
Every investor should have a stock market wish list. What companies do you wish you could own at lower prices? Making a wish list will allow you to take action and buy these companies rather than sit back in fear when your dream companies’ stocks begin to fall during the course of a bear market. For example, I’ve had Apple Inc. (NASDAQ:AAPL) on my wish list for a while. It’s a company with a strong brand, industry-destroying supply chain management (measured by cash conversion cycle), extremely high returns on equity, and excess cash just waiting to be distributed to shareholders. Moreover, it makes products (the iPhone, iPad, and Macbooks) that I am intimately familiar with. The additional upside in future innovation from rumored products like the iTV or iWatch only increases my love of the company.