Chapter One:
Why a contrarian view?

Long after I had decided to write this book, I came across a quote from Steve Spurrier, the highly successful football coach of the University of Florida Gators, that pretty well summarizes my point of view. "I am a little different," he told Sports Illustrated. "I read something once that I think is so true: If you want to be successful, you have to do it the way everybody else does it and do it a lot better; or you have to do it differently."

While I have never met Steve Spurrier, these few words perfectly make the case for a contrarian approach to management: "doing it differently." There are obvious advantages; the element of surprise, since usually no one is expecting what you are about to do. When you are pioneering something new, you are also not subject to invidious comparisons with the competition: you're too small, too new to compete, etc. Indeed, the goal should be not to have any competition. You are creating your own market, your own niche where you can excel on your own terms.

It's also more fun to do things differently. Life and business should not be boring, though so many people try to make it so. At Donaldson, Lufkin & Jenrette, the investment banking and securities firm I helped found 36 years ago, our final corporate objective was "to have fun." We took a lot of kidding about that over the years, but it works and is still listed as one of the firm's corporate objectives. DLJ gets better and better "and more fun" as the years go by. That seems to be the way with Steve Spurrier's football teams.

Being a contrarian is not everyone's dish of tea. "To thine own self be true" is still the best advice, and if you are a very traditional, very conventional, very methodical individual there's no point in trying to make yourself over into a maverick. Go ahead and "do it the way everybody else does it and do it a lot better," which, as Steve Spurrier points out, is the usual way to succeed. But at least by reading this book, I hope you will attain a greater appreciation, and tolerance, of unconventional habits of thinking which may help improve even a traditional management style.

Similarly, while I classify myself as a contrarian by nature, I always make sure I have plenty of conventional, hard analytical thinking around to tell me why my latest brainstorm makes no sense and won't work. The key to success is that delicate balance when the forces of inertia don't squash creative contrarian thinking, but are sufficient to ensure that the idea is carefully researched and, if it is to be pursued, all the small but important details of execution and implementation have been reviewed. The good contrarian chief executive officer must recognize and appreciate the importance of the methodical, detail-oriented thinking that is essential to implementing a new approach. And when the shoe is on the other foot, i.e., the traditional management approach is in command, the CEO is well advised to have some nontraditional contrarian thinkers on hand to challenge orthodoxy. Perhaps the message is that we must try to resist the narcissistic impulse to clone ourselves. Great companies and organizations need diversity, not "group think."

How do you know if you are a contrarian? Most of us inherently know our true nature, if we stop and think about it for a while and are honest with ourselves. You can't tell a contrarian just by looking at a person. Outwardly, I've always been rather conventional and traditional; Brooks Brothers clothes (or is that now contrarian as informal "dress-down days" take over in the office?), the "right" clubs, knowing all the "right people," etc. But deep down I know I'm a contrarian at heart and like to challenge the orthodox way of looking at things. This does not mean that we contrarians are all revolutionaries. For example, I get just as mad as most conservatives at the preponderance of politically correct thinking on campus today. It takes a contrarian to stand up to this onslaught of political correctness, which can become absurd at times. The contrarian instinctively reacts against anything that becomes conventional wisdom.

Contrarian investing has long been a popular term on Wall Street to describe those investors who believe the conventional wisdom is always wrong, by definition, in the marketplace. Once everyone has become a believer in a particular stock or industry, or the market itself, there are no new believers or investors to come in and bid the stock "or the market" to still higher prices. There is, however, big downside risk if the conventional wisdom somehow turns out to be wrong. I suspect that over the long run, contrarian-thinking portfolio managers are better. In the short run the trend followers who caught the latest wave will always look better. Their motto is "The trend is your friend." The absence of major market sell-offs in recent years has not given the contrarian portfolio managers many opportunities to demonstrate their bravery under adversity. Trend, or so-called momentum investors, are definitely ` la mode. That says to me, watch out!

In analyzing my own emotions as an investor over 40 years on Wall Street of watching the ups and downs of the stock and bond markets, I long ago concluded I was best as a contrarian investor; as contrasted to someone good at spotting a trend well after it got under way and riding it to new heights. I was always at my best when "the end of the world seems nigh," such as in 1974 and again in 1980, when interest rates soared to double-digit levels and the markets collapsed, or again when the stock market collapsed in 1987. The collapse of the real estate markets in the early 1990s also created some extraordinary buying opportunities for contrarian-minded investors. Deep in my psyche I always recall the voice of Bud Newquist, my early mentor on my first job on Wall Street at Brown Brothers Harriman & Co. During some market crisis, he observed "the worse things get, the more they will bounce back." He was a congenital long-term optimist with great faith in America's future. And so we bought heavily, and some months later the market did turn and rose with a vengeance to the benefit of our clients. This experience was one of my first lessons that problems always create opportunities; if we can clear our heads and look about us while everyone else is wringing their hands in despair.

If I was pretty good at catching market bottoms, I was less good on tops. I always had to fight an almost irresistible urge to get out too soon. I suppose this was the contrarian in me not wanting to follow the herd. The only thing that saved me from this impulse was the thought of paying capital gains taxes if I sold and admiration for Warren Buffett's style of investing in a few superb companies and holding those investments for the long term.

I don't really have any delusions that I am a great investor. Indeed, I don't know how even to grade myself since most of my life has been spent as a manager of people rather than in managing portfolios of stocks and bonds.

On the other hand, as a manager of people or of a company, I find I'm at my best when times are tough. This seems to be a hallmark of contrarians: We don't panic (famous last words!). And so, over the years I've developed a philosophy and tried to inculcate it in my partners; try to find a way to turn every problem into an opportunity. You don't even have to be a contrarian to remember this. Problems always create opportunities.