Which Third Are You?
A saying goes: "You can categorize investors by which third they want."
In the 1st third (Deep Value) of a stock's upward move, it is drastically undervalued -- selling below liquidation value -- with no visible catalyst to turn things around. Things smell so bad, analysts recommend outright issue "sells" (about 1% of all.) [At parties, you don't even mention you own the stock because you don't want to embarrass yourself.]
The Deep Value guys are in deep but kick themselves for being 9 months early -- during which period they continue to average down.
In the 2nd Third (Fair Value), things are showing improvement. Management has cut costs and have begun to implement reforms, new product lines, etc. The numbers aren't there but for those that understand the product/service, they can project what the future will hold. [Your friends are skeptical, but you've always been the odd one out.]
During this period Deep Value players are getting nervous and looking for other train wrecks. Momentum players think the stock's price movement is still too connected to its fundamentals for their tastes.
In the 3rd Third (Momentum), the products are shipping, profitable quarters have been booked, analysts are happily pointing every which way but down. Brokers are phoning with confidence. [Your friends want to know if you've gotten yours yet.]
Deep Value guys are long gone and Fair Value players have nervously cut their positions in half. Both groups will kick themselves as Momentum players log another 150% appreciation over the following 18 months.
Which scenario best describes you?
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