Wall Street is full of colorful metaphors when it comes to bargain hunting.
Warren Buffett says pure value investing is like buying a “cigar butt” — just trying to get the last few puffs in before it snubs out.
I’ve heard other people use the expression “dumpster diving” … I think that one explains itself!
I like finding value within the market, and I incorporate it into my models. But there’s a reason I’m not a pure value investor.
Cheap stocks can always get cheaper.
If a stock looks like a bargain at $10 per share, it must be an even better bargain at $5, right?
Maybe … or maybe not.
A stock can fall from $10 to $5 and keep right on falling to $1 or even to zero if the company is struggling.
This is the infamous value trap: A cheap stock that gets cheaper due to deteriorating fundamentals.
Don’t Catch the Falling Knife
My friend Ted Bauman said it well when he recently told his readers: “Don’t catch a falling knife.”
That’s a somewhat graphic way of saying that it’s a bad idea to buy a stock that’s dropping sharply, or even in free fall.
Instead, you should wait for an established uptrend before buying. You won’t catch the stock at its absolute bottom, but that’s OK. No one does!
If you wait for an uptrend, you will massively reduce your risk and give yourself a much higher probability of success.
This is the basis of momentum investing.
As the great physicist Sir Isaac Newton explained, an object in motion tends to stay in motion.
Trends, be they bullish or bearish, continue until something stops them.
That’s why I don’t fight the trend. It’s a losing battle. I prefer to follow the trend because my research proves it works.
Momentum is one of the six primary factors I incorporate into my Stock Power Ratings system, and it’s the engine that underpins my Green Zone Fortunes premium stock research service.
I even use momentum strategies to analyze entire sectors on my Leaders & Laggards board. (Read more about the L&L board here.)
Momentum is integral to virtually everything I do as a trader.
Positive Stock Momentum Is Out There
You may think momentum is a relative term this year.
With the S&P 500 bouncing in and out of bear market territory, and with some of the most popular technology stocks down by half or more, it seems that the only momentum these days is to the downside.
But there are still some stocks out there in healthy uptrends if you know where to look.
I recommended one just this past week in Green Zone Fortunes. The company is a critical supplier to the world’s solar panel manufacturers, and its stock is up by more than 50% in 2022.
Yes, you read that right. In a market where it feels like everything is trending in the wrong direction, this stock is up by over 50%! And I expect even greater gains to come.
That’s because my July recommendation is part of the renewable energy mega trend that is just starting to take hold. And it’s not the only way we’re investing in this global energy revolution.
To find out more, click here to watch my “Infinite Energy” presentation.
By the way, I mentioned Ted Bauman a minute ago.
In case you didn’t hear, Ted just got a promotion!
He’s now running our sister company Banyan Hill Publishing’s Total Wealth Fellowship. This is an elite wealth-building community that offers members VIP access to Banyan Hill’s experts and a huge variety of trading services for every investing appetite.
Ted’s expertise will provide a massive value for those folks, and I know he’s thrilled for the opportunity!
We’ll be handling some of Ted’s former responsibilities going forward, and it’s nice to know that he and I are reading from the same playbook!
To good profits,
Adam O’Dell
Chief Investment Strategist
