I actually don’t even want to say what is on the tip of my “typing tongue” which is, “buy when there’s blood in the streets. I don’t want people, who have heard that a million times, to tune me out.
I was listening to a well-known speculator, and he was talking about the booms and busts of sectors. He mentioned that no matter how much education someone has about what is the theoretically right thing to do, they end up allowing their emotions take the best of them. There is so much money to be made when major imbalances occur in the markets, and recognizing them following up with an action is the key to success.
Easier Said than Done…Right?
Let’s take the company Ford for instance in 2008 during the financial crisis. I would say this is a pretty solid company that is going to be around for many years, and if you would have had this company on your radar in 2008, serious money could have been made. The reality is, this stock hit a high in 2008 of around $8.50, and then started collapsing from there. The most difficult part of trying to purchasing a company while it’s collapsing, is that you don’t know with certainty where the bottom is.
Ford in the Spring of 2008, hit its high, and by June of that year it was down about 25%. For many, that might have warranted a honest signal to purchase this company, but the downward spiral wasn’t over — far from over. By the end of September, Ford was trading at around $5, which was 40% off of its high in the spring. This would seriously seem like a significant correction worthy of a potential entry. If your history memory serves you well, October 2008, was when the stocks went into their freefall, and by mid-October Ford was down 70% from its high and 50% in less than 15 days down to $2.50. As long as you had enough confidence in believing that Ford was going to make it out the other side of this stock freefall, now would be a great time to buy right? But the reality is, even after the stock collapsed by 70% and you got in at $2.50, your entire investment at $2.50 would still have been severed by 50% all the way to $1.25.
Wouldn’t you agree that buying Ford at $2.50 after it has fallen from $8.50 would have been buying while there was blood in the streets…and then to watch the stock fall another 50% from there? That is extremely frustrating!
This is the case in point of the phrase “catching a falling knife.”
The question is, after looking at this scenario, whether or not it’s worth it trying to speculate in a company like this, and purchasing the stock when they are freefalling because as you can tell, it’s not exactly a perfect science knowing when and where to get in?
Just using the $15 dollar price Ford trades around now, let’s see how the different entry points would have fared over time.
Even if you would have purchased Ford on the first 25% leg down at around $6.37, then today you would be up 230% even though you would of had to watch your investment collapse down by 80% before you would have seen the reward.
If you would have purchased at $5, you would be realizing a 300% return.
If you bought at $2.50, you would have seen a 600% return.
And finally, if you were lucky enough to catch the bottom at $1.25, you would have realized a 1,200% return on your investment in Ford.
Speculate in Good Quality Investments!
The truth is, there is a lot of money to be made when you speculate. When you are dealing with stocks, there is no way to perfectly call the top and perfectly time the bottom. The good news is that when you purchase these stocks when they go on sale, it maximizes your returns for the future.
I want to encourage you to check out the 10-Bagger Letter! Right now we are alerting all of our members on an energy play that is severely discounted, and poised to be a big winner for those who purchase this company at these attractive prices. We’ve priced this newsletter so low because we want it to be something most everyone can afford and benefit from.
I’m inviting you to take advantage of this bargain!
Chief Editor at CrushTheStreet.com