I wrote the following article for Institutional Investor magazine. Well, kind of. First I wrote to our clients as part of our first-quarter letter, explaining why we bought Conn's during the quarter. I feel a little bit uneasy sharing this article, because Conn's has a tremendous run-up since. Despite the run-up, we were buying it for new accounts at $30 just a few weeks ago. I have no idea where the stock is going to be in a week or a month, and for all I know I could get lucky and the stock will go into the $20s again (I'll buy more).
I strongly advise my readers to do their own homework – and there are many reasons to do so. I may end up being completely wrong about Conn's. investing is an art of probabilities. Not every stock in our portfolio will work out (trust me on this). If you blindly buy a stock because I wrote about it, you only know what to do in the beginning but not during or at the end of the journey. It may prove to be an easy one. Often it will not be. One day you might wake up and find out that this darling just took a 30% dive (take a look at Conn's stock chart; it has done so a few times).
We've put hundreds of hours of research into this and our other picks – new news becomes just another data point for us on the backbone of our intensive research. If you have done zero research of your own, then you won't know what to do: buy more, do nothing, or sell.
The Conn's Paradox, or the Synergy of Awful
by Vitaliy Katsenelson
One plus one equals three: That is a business school definition of synergy. Two companies join forces, and the quality and profitability of the combined entity improves more than the arithmetical sum of the parts. On the other hand, when you combine two awful businesses you get the inverse synergy: Negative one plus negative one equals negative three.
I expected to see inverse synergy at Conn's (CONN) when we started analyzing it; after all, the company consists of two pretty awful businesses — a retailer of electronics, furniture and appliances and a subprime lender. However, we discovered the opposite phenomenon and are now proud to reveal Conn's paradox: the (positive) synergy of awful.
