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Your Homework: Prep for the Market Turnaround Now

Editor's note: This was originally published on RealMoney. It is being republished as a bonus for readers. To subscribe to RealMoney, click here

One question I am frequently asked is why I spend any time looking for long ideas and discussing cheap stocks when I think the market is going lower. The answer is very simple: At times I am going to find stocks so cheap I want to own a little regardless of market outlook.

When I find a stock selling for less than net cash or way below tangible asset values, I want to own a little. History and experience have taught me that stocks such as Electro Scientific (ESIO - Get Report) should just be purchased regardless of what the market may do. Here you have a stock at half of book value, near cash levels, and with David Nierenberg as a substantial shareholder. I will take my chances relative to the market. My margin of safety is so large that I am comfortable owning it.

The other reason is that although I was politely asked to leave the local Cub Scout troop as a boy for various offenses involving firecrackers, pumpkins and a pack leader with no sense of humor, I do admire the motto -- "Be Prepared." I do think this market is going lower. The economic and financial conditions justify lower prices in my mind. I also have no idea how long it will take to work down to levels that would make me a buyer. It could just continue as we have so far in 2009 -- ticking down day by day. We may have a cataclysmic event that causes a steep one- or two-day sell off. The time to shop for a fire extinguisher is not right after you spill grease into an open flame. I want to be ready with a list of stocks with solid asset values and recovery potential.
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FRX $99.00 -0.77%
SCMR $0.40 0.00%
BSX $21.92 0.00%
DAR $14.49 0.00%
ESIO $7.05 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

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