Don't Let Them Scare You

Some people out there will tell you that you're banging your head against a wall by picking your own stocks, because you can't know more than the experts on the Street do.

I don't buy it. I don't suggest you buy it, either. It's possible for individual investors to be braver than the market and even, at times, smarter. I know, because I am one of those little investors, and I do it frequently enough to beat many of the experts on the Street. So long as I don't let them scare me.

Let me tell you ...
More than a year ago, I watched a company I knew fairly well, SanDisk (NASDAQ:SNDK), slide from a little bit undervalued (where I had begun buying my shares) to blood-in-the-streets cheap.

For weeks, I watched some of the savviest market-watchers out there predict all kinds of doom: a flash-memory glut, falling prices, and the end of demand because of slacking camera sales. I had knowledgeable industry professionals emailing me with all sorts of data that purported to show that flash demand was down, pricing was down, and terrible things were in store for SanDisk's margins and profitability.

I, on the other hand, believed that phones and convergence devices would provide a very large new growth stream. I believed that SanDisk's habit of working with device manufacturers like Nokia (NYSE:NOK) and Sony (NYSE:SNE) to create new card specifications would ensure a level of subsequent product sales as well as the potential for fat-margin licensing fees. And I believed that SanDisk's aggressive pricing strategy -- which some saw as a negative because of short-term margin blips -- would, over the longer run, be positive as it spurred consumption of larger amounts of flash memory.

From December 2004 through June 2005, SanDisk was trading for as low as 15 times earnings and at an average of 17, and I was dead certain it was primed for better than 20% growth. This was a spicy but classic value. It was the industry leader, deeply entrenched, misunderstood by worrywarts. And its potential growth was selling for a dirt-cheap price.

Turned out I was right
Flash demand grew more quickly than anyone expected, hitting a sprint pace when Apple (NASDAQ:AAPL) moved more of its hot-selling iPods to flash. In fact, Apple's anticipated need is so huge that it made the unprecedented move of paying chip makers such as Intel (NASDAQ:INTC) and Micron (NYSE:MU) to move into the market for it. Tight supply kept selling prices high. SanDisk saw a broadening market for its products in items such as media-rich phone models from Motorola (NYSE:MOT). This meant that earnings growth for the past two years has actually come in around the 40% mark. And since July 1, 2005, they have more than doubled.

Sounds like a success story? Only partially, because I made the mistake of letting the naysayers scare me. At least a little.

Yes, I held my shares, but I passed on the opportunity to load up in the low $20s. It was only when the tide began to turn and the stock ran back to the $30s that I started adding. Sure, those shares are up at least 80% too, but I know you're with me when I say this: I'd rather have had the triple from the $20s.

The moral of the story is simple. I gave it away at the beginning. Don't let them scare you.

There are a million reasons the Street might be frightened, but it doesn't mean you have to follow suit. The key to taking advantage of values is doing the math and having the guts to buy before it's too late. No, you won't always be right, but the odds will be in your favor. And over the long run, that's enough to give you the edge you need.

Do the work -- buy when the market won't. That's the philosophy we follow at Motley Fool Inside Value , where Intel was a recent selection. A free 30-day trial will let you learn more.

Seth Jayson will take the spicy values as well as the boring ones. At the time of publication, he had shares of SanDisk but no positions in any other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.