I know I'm privileged. As a Fool writer, I get to access all seven of our impressive newsletters for free. I can peer into each of their scorecards -- just about all of them maintain scorecards, featuring every pick made -- and can see at a glance how well the various recommendations are doing. Often, the recommendations that are currently underwater are in red.
When I'm looking for stocks or mutual funds in which to possibly invest (in compliance with Fool rules, of course), and I scan through our recommended investments, I confess that an inclination of mine is to ignore the ones in red and zero in on the ones that are up by 30%, 60%, 200% ... you get the idea. But that's not necessarily the best thing to do.
An important point I occasionally have to remind myself of is that the recommendations in red may be the best bets.
You can peek, too
Before I continue, though, permit me to point out that you can access our newsletters' scorecards, too. Simply take advantage of a free trial, and you'll immediately have full access. You'll see all the new picks and all the past picks, plus you'll be able to read various special reports and features.
Peering inside InsideValue
Let's peer inside one of our newsletters now, shall we? Our Inside Value newsletter, headed by Philip Durell, has made 26 recommendations as of this writing. About 20 are in the black (well, green, on our online scorecard), and six are in the red. Eleven have double-digit gains, and five have gained 40% or more.
Here's how we might think about the securities in red: When they were recommended, Philip considered them significantly undervalued, and worth investing in, because there was a strong likelihood that they would appreciate well. Right now, they're trading at a price below the one at which they were recommended. Does this mean that Philip screwed up? Not at all. Though, of course, I fully expect him to screw up on occasion -- even Warren Buffett screws up, on rare occasions. The beauty of getting advice from someone like Philip is that he's likely to screw up to a lesser degree than I would, because he's a savvier investor and one who spends a lot more time studying companies than I do.
As you know, stocks never move in a straight line. Look at venerable Coca-Cola
- Aug. 10: $43.90
- Aug. 11: $44.11
- Aug. 12: $43.58
- Aug. 19: $44.39
- Aug. 26: $43.57
See? Up a bit, down a bit. At some point it will make a stronger move, advancing significantly more than it retreats over a period (or vice versa!). Many stocks are much more volatile than that, too. So accepting the fact that stock prices will often fluctuate up and down within a relatively narrow band for a while, it's reasonable that any recommended stock will be underwater for a while -- until a catalyst kicks in, such as a new product launching, strong financial results being reported, or perhaps extra media attention.
Making sense of red and green
While I may be attracted by the 12% gain in Philip's June recommendation of AutoZone
Turning to those in red, there are two standouts -- Doral Financial
[It] has almost 50% of the U.S. beer market. Anheuser's scale provides huge advantages against competitors. Its distribution network is unparalleled in the North American beer market, and it has the financial clout to expand outside the U.S. into markets like China. The company is likely to be able to continue to dominate its markets and grow for decades.
Philip estimated the intrinsic value of Anheuser-Busch at $62 per share and recommended buying in at prices below $50. He forecast the price to hit $80 to $100 in three to five years. Well, he recommended the stock when it was around $48 per share, and it's now around $45 per share. This looks like a stock worth considering and learning more about!
You don't have to rely on newsletter picks to look for strong companies that have retreated a bit recently and may present exciting buying opportunities. If you have the time and interest, just read broadly and pay attention. I recently noticed, for example, that Dell
Sometimes great companies simply sputter a little, and these can present rare chances to jump aboard. One such situation that I noted, but failed to act on, was back in 1993, when I saw that IBM
Another good opportunity is one I did manage to snag. In July of 2002, Johnson &Johnson
The bottom line
The bottom line is that you can profit handsomely by seeking out strong companies that are facing some temporary, fixable challenges. In our newsletter picks and elsewhere, look for stocks that have fallen recently, and then dig around enough to determine whether the problems seem to be short-term or long-term.
Learn more in Chuck Saletta's article "Beat the House at Its Own Game."
Selena Maranjian 's favorite discussion boards include Book Club , Eclectic Library, and Card & Board Games. She owns shares of Coca-Cola and Johnson & Johnson. For more about Selena, viewher bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.