About an year ago, I had bought a stock which was at its all time low, while the market was trading at its all time high.
The trouble with buying that stock so low was that it was just so difficult to convince myself that it is just a market anamoly that the stock is doing so badly when the rest of the stock market is doing so well.
One year down the road, the stock has reduced to one-fifth in its value.
The real trouble with buying low is that you can never guess what ‘low’ is. What seemed like a bargain an year ago looks like bad judgment now. A look at the company’s numbers still doesn’t explain why the stock is doing so bad.
The company itself is in good shape and even though profits have declined last year, the stock price has declined exponentially and has fallen way below what is reasonable for a company with its earnings and financials.
So, once again the question arises. Is it a good idea to buy some more of this stock? I still think it is, this is a market anomaly and the stock is trading much cheaper than what its real worth is. Does that mean, it will not reduce to one-fifth in value over the next one year? Who knows.
When we look back at the current economic crisis, it will be either as a great stock market buying opportunity or the beginning of a deep recession or even depression.
If we are going to get into a deep recession, then this move will turn out to be really bad. If it is not, then this is a great buying opportunity.
I am not able to see a situation of a prolonged recession, so I am going to go ahead and buy the stock today. What I will not do henceforth is to buy stocks when the market is trading at its all time high, even if the stock is at its all time low.