Avoid Getting Burned by Solar Stocks

Solar stocks are in a "fad" phase. They were white-hot performers for most of 2007 in terms of huge performance, and there were a lot of initial-public offerings chasing that performance. At the start of 2008 they are, collectively, getting crushed. (First Solar's(FSLR Quote) earnings report is helping the sector today, but many of the stocks are still well off year-to-date.)

One common aspect of navigating equity markets over time is how to recognize, deal with and possibly trade fads. Fads can pertain to subsectors or to individual stocks; remember Comparator Systems, a.k.a. IDID, or Andrea Electronics from 15 years ago? There will always be fads coming and going. Some will go quietly, like IDID, but some will pull a lot of people down with them, like many of the Internet stocks at the beginning of this decade.

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Fads appeal to our emotions. The fact is, many of the fads are life-changing -- or at least have big impacts on us. I would say the utility of the Internet has at least lived up to its billing of 12 years ago, and probably exceeded it. The Net has changed the way we do almost everything. The impact on society was right but the stocks were not. ...