Monday, May 5, 2008

Buy on Bad News


Today, the Tropicana Casino's parent filed for Chapter 11 bankruptcy protection. While this is probably not the correct time to invest in casino stocks, it does signal a key investment strategy: Buy on Bad News.

Frankly, it amazes me how many people want to buy into the hot markets when profits are gushing and P/E ratios are outrageous.

My philosophy for individual stocks or other targeted investments, buy on things that have been beaten down and have the potential to bounce back.

Good Example: The Gaming industry is probably to take a beating in the short run. Now is the time to start shopping for that "good buy" at a "good price" at the right time.

Bad Example: Landline phone companies. Every US phone company will tell you they are losing landline customers by the boatload. They are all investing in their wireless and internet platforms and disinvesting in landline businesses. Do not invest in the modern version of the buggy whip company. While landlines will be around for another 50 years or more, they are unlikely to ever "bounce back."

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