Don't Think It Can't Happen Again

Often, we investors will look at stocks that have fallen and will lick our lips. We figure that they've dropped in value, are better bargains now, and have seen all the losses they'll ever see. We don't imagine that they will fall any more.

Here, for example, are some well-known names that are down considerably over the past 52 weeks:

Company	Return year-to-date
Bristol-Myers Squibb (NYSE: BMY)	(24%)
Microsoft (Nasdaq: MSFT)	(29%)
China Mobile (NYSE: CHL)	(41%)
Toyota (NYSE: TM)	(17%)
Merck (NYSE: MRK)	(47%)
Goldman Sachs (NYSE: GS)	(42%)
Boeing (NYSE: BA)	(35%)

Data: MSNMoney.com, as of Sept. 23, 2008.

It's tempting to think that they're done, or close to done. But that may not be the case. Microsoft, for example, is not as impressive as it once was. Its ads featuring Jerry Seinfeld have quickly been brushed under the rug, and its new Vista operating system is reportedly being replaced as soon as possible. Given that the upcoming operating system will have been rushed to market, it's not inconceivable that it will offer annoying bugs of its own. Meanwhile, Boeing has recently faced a union strike, while wrangling with the government about contracts -- and winning.

The bottom line is that you should evaluate each stock carefully, on its own. Know that those that fall can still fall further. Those that have risen shouldn't be counted out, either -- they may continue to rise. Just examine each firm closely -- evaluating its competitive position, its growth rates, its profit margins and debt and inventory levels, and more.

Unlikely developments are likely
Fight the urge to think that unlikely things (stocks in good companies falling further, for example) won't happen. They just might. I was reminded of this recently when reading about Virginia Zinn of St. Petersburg, Fla. She's a blind woman whose house has been hit by cars, trucks, or buses seven times in just 11 years. You might think that after it happens to your house two or even three times, it can't happen again, but it can. After all, even if you win a lottery jackpot, if you buy another ticket you will suddenly have another (microscopic) chance to win.

If you'd like some pointers to promising companies among the downfallen, we invite you to check out our Motley Fool Inside Value newsletter. A free trial will give you access to all past issues and all recommended stocks.