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Bad-News Bears

Have you ever made an equity investment and wondered, while looking at a chart or the annual high/low price range in the newspaper of the equity that you recently bought, who are "those guys" who bought near the low or even the bottom? Why is it that every research analyst's investment report that I see usually is recommending purchase at or near the high? What do they do or know that I do not do or know?

They are the Bad-News Bears.

Bad news, because they look for investment possibilities where the news is universally bad about the company and the underlying equity.

Bears, because they look for situations where generally all analysts and media are negative about the company and the underlying equity.

The combination of these two factors should be used to your advantage as a basis for initial investment consideration and the opportunity to buy at or near the low price.

Why?

When investing, you pay a high price for certainty and investment community confirmation and you pay a low price for uncertainty, due diligence, and self-confidence.

As a test look at typical economic analyses and equity research reports.

Watch analysts on television and observe the recommended price and the price history of the financial markets, industry groups, individual investments of which they speak.

With rare exception a buy recommendation occurs well after price appreciation has begun and a sell recommendation occurs well after the price has begun to fall.

Clearly some news is actually bad and reflective of the beginning of the end.

Reflect on the histories of each of the following investment areas:

(Digests of headlines starting from about twenty years ago, when this commentary was first written.)

Headlines

Financial Markets

Industry Groups

Individual Investments

These are the situations and circumstances under which extraordinary investment opportunities can be found.

Without exception, the very best time to invest in each was when the outlook, opinion, and the news were the very worst.

As bad as each has appeared to be, remember that all markets, industries, and companies go through normal growing pains and business cycles; however, the markets, industries, and companies that flourish all have several traits in common:

Use your judgment to distinguish between resolvable problems within both critical industries and emerging mavericks and fundamental flaws in declining industries and one-night stands.

The nice thing, they are not hard to find; newspapers, television, magazines, expert commentary, analysts, and the Internet all have headlines blaring out what is wrong about the markets, industry groups, and individual investments

Each is awash in bad news and yet, have a history of quality, integrity, and a demonstrated ability to both survive and excel over the long term.

The worse the news is the better the investment opportunity.

Simply start to build a list of investment suspects that you will consider.

There is no rush in building a database of possible Bad News Bears.

In an effort to avoid long periods of time before price appreciation begins in recognition of anticipated improved conditions, buy a little now and then enter an open stop buy order above the current price so that you will start buying more as the stock begins to move up; if the investment makes sense to you, then you want to wait until it is beginning to make sense to others.

False start and stock goes back down, buy more and put in another open stop buy order.

When might you first start to think about selling?

When there is good news, when analysts start to suggest that you buy, and when investors wrapped in their investment report security blankets actually start to buy!