This is a pet concept/theory of mine that I would like to throw open for discussion.It is unfortunately true that when a share looks particularly cheap there is quite often something wrong with it - bad news around the corner,etc.I have fallen victim to this on three occasions recently - Alco Holdings in Hong Kong,Bergman and Beving in Sweden,and earlier Crown Crafts in the USA. I believe that this factor is accentuated in over-priced markets - due to the scarcity of cheap stocks in such markets - leading to a stronger restricted choice factor..Comments welcomed !
Hi AlanJenkins2,
I agree with your statement and it's why I avoid "cheap" stocks during bull markets. Value investing works best during the bottoming phase of a bear market, then holding these stocks to the end of the next bull. This bottoming stage is where you can pick up good quality companies trading below their intrinsic value - Warren Buffett style.
I believe that sticking to one investment style can be the Achilles heel for most investors. For me, with help of Stockopedia, I aspire to be a trader who makes money in all markets conditions. Broadly speaking, I adapt my investment style as follows:
Bull Market = Growth/Momentum
Sideways/Ranging Markets = Swing Trading
Bear Market = Short
Bear Market Bottom = Value/Bargain
Subsequent Bull Market = Growth/Momentum
I use a mixture of chart patterns, moving averages and general market sentiment to determine which stage of the market we're in.
Anyway, I've digressed a little bit. I think value investing during a raging bull market requires you to be an excellent stock picker and having a knack of timing your trades very well... a true "buy the dip" investor. Trading against the trend, in my opinion, is risky so I prefer to adapt my strategy to what's actually happening rather than trying to guess when it's going to change.
