Waves vs Tides
I like the way Wadhwaney thinks: It's What He Doesn't Do That Seems to Pay Off. That's a strategy that makes sense to me: invest in solid companies that are down on their luck (let me call this: Invest in Low Solid).
As I see other stock-investing strategies that to come to mind:
- Invest in Winners (including index investing): Well, everyone knows they're winners, so they are probably priced accordingly (assuming they aren't over-hyped and over-priced) and there's not a lot of room for great long-term growth. And winners tend not to stay winners forever (see airlines, GM, and Ford for companies that seem of have lost their footing in significant ways recently). So if you buy at par or high, the market might find it easier to bring you down with an "Enron" or "Anderson" than raise you to new heights, or your company might make bad long-term decisions and lose their edge (see GM again). But this isn't a bad strategy overall if you don't have time to do the research to support the Invest in Low Solid.
- Invest in Undiscovered Gems: This is similar to Invest in Low Solid, but involves more guesswork and luck. The "next big thing" may be quite new and young, so it's hard to do all the research required to do well with this strategy because the information may not be available. As well, lots of good ideas don't take off and sometimes bad ideas do (toy fads come to mind). There's more luck here because people are not always reasonable (so reasonable predictions fail).
Recently, my own company's stock hit a new recent-history low. Other people thought it was bad news. And for some of them it was I imagine. But for me, it was great news. The high-price of the late nineties, even with my employee stock purchase plan discount (which may be only about a 1/3 as good as it appears since I'll be paying income tax on the discount somehow someday), caused major damage for me, someone young and just getting into the game and needing some long-term investment possibilities.
I only rarely pay any attention to short term stock movements. They are uninteresting for most of us most of the time and I can't understand the fascination with watching stock tickers and listening to the daily ups and downs of the Dow Jones and such. Of course, I've never been able to improve the speed at which my water boils for tea by watching the kettle either. Maybe other people have better luck.