Lenny Dykstra Takes a Swing at Wall Street

False diversification was the critical element that helped my brokerage account post spectacular losses, seemingly in the blink of an eye. With that lesson under my belt, along with hours of books on CD and days of training with some of the best minds in the financial industry, I felt ready to step up to the plate, get in the box and take my swings.

A Pitch to Hit

Before I take a position in a stock, or before I put a company in the starting lineup, the company has to clear these three hurdles.

The stock's return on equity, or ROE, must be higher than the forward price-to-earnings ratio.

The stock must have an abundance of free cash flow, which is defined as money left over after the company pays its bills. This is very important because this really tells me if the company is making "real money."

The company must have a low level of debt, with a debt-to-equity ratio -- long-term debt divided by shareholder equity -- preferably below 1.0, but absolutely below 1.5. The ratio indicates the extent to which a company is leveraged and, thus, how vulnerable it is to an economic downturn. One caveat: I'll occasionally make exceptions on the debt-to-equity ratio for certain fast-growing companies if I have strong faith in the firm's potential upside.

Now, let's get in the box and take some swings. Leading off is Symantec (SYMC Quote). Trading at $20.85 after merging with Veritas, the selling is overdone. It has no debt, almost $3.5 billion in cash and just under $1 billion in free cash flow. If that's not enough, Symantec has a $3 billion stock repurchase plan that is ongoing through the end of the year. It keeps getting better; Symantec is exposed to the highest growth areas of software spending and has a leadership position in a consolidating market.

Batting second: Dow Chemical (DOW Quote), trading at $43.21 as of Friday's close. This company is a monster. It prints money. The stock has been hammered and is not far from its 52-week low at $41.52. Why? What is the reason? Because it trades at 9.78 times trailing earnings? Not! Or maybe it's because the ROE is 35.6%? What a joke! But you know what? If they want to give this great company away, I will continue to add to my position.

Remember, those "operators" on Wall Street love to run stocks up so the public thinks everything is OK and it's time to get back in the market. It goes something like this: Mr. and Mrs. Smith get a call from their broker telling them Dow Chemical broke out -- i.e., that it's finally time to get back in the stock and buy. Then, Mr. and Mrs. Smith jump in and start buying. Now, guess what the operators on Wall Street do? You got it -- they sell, leaving Mr. and Mrs. Smith holding the proverbial bag.