Among the many mistakes we make when we invest, fixating on the wrong number can be one of the most painful.
A case in point
Bill Miller, the famous manager of the Legg Mason Value Trust (LMVTX) mutual fund, beat the S&P 500 for a record stretch before hitting a string of awful years. He's still got a great long-term record, and his fund's recent rally has been partly fueled by holdings in the likes of eBay (NASDAQ:EBAY), up 69% in 2009, Sears Holdings (NASDAQ:SHLD), up 115%, and Amazon.com (NASDAQ:AMZN), up 162%. But while Miller's fund was up 41% in 2009, it still dropped an average of 15% per year over the past three years.
But those numbers in and of themselves -- where the fund peaked, how far it fell, how far it's risen since -- don't necessarily mean a thing. The peak that Legg Mason Value Trust hit back in 2006 might have been wildly overvalued. And its subsequent fall might only make the fund that much more appealing.
The following companies have earned the maximum five stars in Motley Fool CAPS. But while they did well in 2009, they're still somewhat below their 52-week highs:
|
Stock |
2009 Return |
Percent Below 52-Week High |
|---|---|---|
|
ATP Oil & Gas (NASDAQ:ATPG) |
213% |
17% |
|
Activision Blizzard (NASDAQ:ATVI) |
29% |
17% |
|
Petroleo Brasileiro (NYSE:PBR) |
98% |
10% |
|
FormFactor (NASDAQ:FORM) |
49% |
21% |
Data: Motley Fool CAPS, Morningstar.com.
Despite their impressive returns, these numbers alone aren't enough from which to draw conclusions. Personally, I'd pay greater attention to their five-star status in our CAPS community. The thousands of investors who've voiced their support for these companies must see significant potential.
Don't be swayed by seemingly meaningful numbers. Remember that a stock's intrinsic value, and how far above or below that price it's currently trading, are more important than its absolute peaks and valleys. That's how you find great bargains.
