Dykstra: How I Pick Stocks

06/26/08 - 10:38 AM EDT

Lenny Dykstra

Winning requires work. That's why you have me.

For the picks, I do most of the legwork so that you don't have to. However, investing is serious business and there are some basics you will need to grasp and ground rules you must follow if you want to ring the register frequently.

Today, I am going to explain the concept of "averaging down" and why it's crucial to my strategy.

My system is designed to pick good companies I feel are beaten down by Wall Street unnecessarily. My expectation is that because these are generally solid companies that are being punished for one transgression or another, or are victims of their overall market sector, they will bounce and recapture at least a chunk of the ground lost. Simple, right?

We don't need them to fully return to past glories, just to move up a dollar from where we entered the position so we can grab a $1,000 win (as a reminder, each contract controls 100 shares of the common stock and we are buying 10 contracts, so essentially we control 1,000 shares).

I cannot say this enough: This is not a long-term, buy-and-hold strategy. I pick these companies because I feel they fit my strategy and put us in prime position to make money on the bounce.

Mad About Options: Nike Know-How

Our goal is to find a bottom. That, of course, does not always happen. Market conditions change and Wall Street's operators sometimes continue to kick a company when it's down. Or sometimes our prediction is off a little at the outset. It's inevitable that some picks will fall further before bouncing back.

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