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Panic and fear are tools for this contrarian investor

Isaac Legault prefers to invest when panic, fear and pessimism prevail.

Mike Legault, Legault

Isaac Legault

Occupation

Enrolled in the Ivey School of Business at the University of Western Ontario

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The portfolio

DH Corp., NorthWest Healthcare Properties REIT, Alaris Royalty Corp. and other mid-cap equities.

The investor

Isaac Legault bought his first stock when he was 15 years old. "The stock is delisted now, so you can guess how that turned out," he says.

The loss discouraged him from investing for several years. Now, he is back in the market and finding more success with his "own combination of fundamental and technical analysis." He is also taking steps toward a finance career, including a work term at RBC Dominion Securities performing equity research on mid-cap companies.

How he invests

For the most part, Mr. Legault is a contrarian investor. Panic and uncertainty are fertile grounds, in his opinion. "I often invest in mid-cap companies that have recently had a surprisingly poor earnings report, a shocking news release" or some other adverse event, he says.

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Those types of conditions can "create situations where fundamentally strong companies are trading at steep discounts to their fair value." This is especially so for small- and mid-cap equities where the lack of analyst coverage means "excellent investment opportunities often go unnoticed." Once Mr. Legault finds a "stock that has had its valuation significantly cut," he'll dig into the company's financial statements, markets and so on. If he buys, he'll patiently hold until the market bids the stock up to its real value – at which point he sells and moves onto the next undervalued opportunity.

Mr. Legault became interested in financial-technology provider DH Corp. after a poor earnings release in October sliced its share price in half. The stock has since partially recovered but Mr. Legault's analysis indicates it could go up another 25 per cent or so from its current price near $23.50, whenever delayed contracts are renewed, U.S. lending picks up, or a buy-out bid prices the firm near its break-up value.

Best move

It was purchasing the shares of a small mining exploration company that "had been releasing very encouraging mineralization reports." They were later taken over by another company at a 150-per-cent premium to the market price.

Worst move

It was selling his DirectCash Payments Inc. shares too early. A few months later, they were acquired by another company at a 60-per-cent premium to the market.

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Advice

"Be cautious when investing in a company that the market is very bullish on – they have a lot of downside potential if there is any indication expectations will not be met," Mr. Legault advises.

Want to be in Me and My Money? Contact Larry MacDonald at mccolumn@yahoo.com.

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