Down Is the New Up

quotes from
http://www.washingtonpost.com/wp-dyn/content/article/
2008/10/21/AR2008102102735_2.html?nav=hcmoduletmv

The bottom-feeder doesn't mind hunting alone ... gloom is the bottom-feeder's natural habitat.

Murphy, a retired corporate executive who made a bundle in the 1980s when the technology company he founded went public, doesn't sound giddy. Just confident.

Friends and loved ones are panicking, quivering, hiding, selling. But the bottom-feeder has faith in the markets, faith in the charts that say stocks outperform other investments over the long haul, faith that things will get better. And available cash. ...

He's coolly looking at the numbers, all logic and reason. ...

He stayed faithful when the market crashed in 1987. And his portfolio bounced back.

He stayed faithful when the dot-com bubble burst in the 1990s. And his portfolio bounced back.

He's faithful today, even with the market tanking and a recession either looming, or already here. He's almost Zen about it.

"A recession is like a forest fire that helps burn out some of the dead stuff on the ground," he says, "so that the forest can survive." ...

Richard Peterson is a psychiatrist who runs a hedge fund, as well as a consulting business called MarketPsych. Peterson thrives on bad news -- when the fear centers of other investors' brains are screaming "flight" (sell), he wants to stay and "fight" (buy). They've got the same brains, he just manipulates his differently. As a neuroscientist, he's fascinated by human behavior; as an investor he can't resist a deal.

"I love it," he says.

Peterson developed a program that tracks despairing words in financial news shows, corporate conference calls and Securities and Exchange Commission filings. A kind of personal Google of pessimism. Peterson's method is all about "buying panic and selling optimism." And lately, it has been telling him to buy, buy, buy. He's been scooping up shares of all kinds of companies, including a couple he remembers only by their ticker symbols: USAP and MIND.

"I don't exactly know what these companies do," he says, before quickly explaining that he's into crunching numbers to identify companies with stock prices that don't reflect the health of their balance sheets. "This is the opportunity of a lifetime." ...

As the markets plummet, Montgomery feels like he is going through a "surreal experience. In this kind of market everything is a stomach-churning event."

But he keeps going back to his principles, bucking up his faith. He remembers an "old sage" telling him that their business was best viewed upside down: The right thing to do was the opposite of what he was seeing, like Jerry Seinfeld's Bizarro Land. He studies the charts, ponders the "weight of the evidence, value extremes, oversold and overbought stocks." He marshals mysterious inner forces. Everything begins to make sense.

Finally, on Oct. 8 and again on Oct. 9 -- "Freefall Friday," as Britain's Daily Mail called it -- Montgomery starts placing orders for his clients.

He has passed his test of faith.

"You don't have many opportunities like this -- mercifully," he says.

He falls back on one of his many mantras: "Being irrational at irrational times will prove to be beneficial." The market, he's decided, is being totally irrational.