This column was originally published on RealMoney on Sept. 23 at 12:47 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.Often investors, both professional and amateur, will run across what seems like a great investment idea in the media and run to act on it. My advice is simple: Wait. For months, perhaps.
Know Your EnemiesA number of media sources are particularly given to sensationalism, such as newsletters, online message boards, radio and sometimes television. The risk is particularly great when the "expert" speaking has an ill-defined financial interest in the idea under discussion. The higher the level of emotion employed, the lower the level of humility, and the less the focus on what could go wrong, the more you should be skeptical. The adviser can sometimes be an enemy of wealth creation. There are other enemies as well: sophisticated traders who watch for unusual trading activity off of media play and take a short-term contrary position. They short into bullish news and buy bearish news when they perceive that the money acting quickly on it is naive.
What to DoMy advice is simple: Wait. Invest in a subset of the ideas that still have value and have not fully reacted to the information after a period of time. Also, compare new ideas as a group vs. each other and against the existing assets in your portfolio. Only add a new idea if you think it will beat the median idea in your portfolio. I have detailed these ideas in a piece titled "
|Decision/Reaction Grid||Merit of the idea still good?||Merit of the idea bad?|
|Results have already occurred.||Can't kiss them all.||Glad I missed that bad boy.|
|Results have not occurred yet.||Invest.||Don t invest.|
Lest This Be Purely TheoreticalI maintain a "B list" of securities that might be interesting investments but don't meet my criteria at present. Here's a list of securities I don't own that are cheaper than the median cheapness estimate of my portfolio. Have a look; maybe you'll find one that interests you.
|Symbol||Name||Short Ratio||Yield||Mkt Cap||P/E (next yr)||P/B||P/S||Range|
|BAC||BANK OF AMERICA||3.8||4.38||169.5B||9.54||1.69||3.18||7%|
|CTB||COOPER TIRE & RUBBER||27.9||2.67||967.6M||16.94||0.99||0.46||6%|
|EDP||ENERGIAS DE PORTUGAL||8.6||4.25||10.352B||12.67||N/A||0.99||55%|
|FMP||FELDMAN MALL PROP||N/A||1.92||173.4M||9.09||1.61||6.56||71%|
|TMX||TELEFONOS DE MEXICO||7.4||3.29||22.700B||9.3||2.45||1.58||86%|
|Source: David Merkel and Yahoo! Finance
Range Statistic is zero at the 52-week low, and 100% at the 52-week high
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