Every stock trade involves a buyer and a seller. Both have access to roughly the same information, yet they choose to make polar-opposite decisions about a stock. If you want a shot at winding up ahead of the pack, you have to accept that fact.

To be successful, you must pay attention to what the person on the other side of your investment is thinking. Why is he selling when you're buying? Why is she willing to buy the shares you're trying to unload? If you can figure that out, you'll be light years ahead of the competition.

Go! Fight! Win!
There's simply no such thing as a perfect investment. If there were, investors would soon bid up its price to the point where it was at least as risky as any other alternative. As a result, there are always two legitimate sides to any given analysis. To drive home that point, The Motley Fool runs a regular "Dueling Fools" feature, where analysts square off against each other on opposing sides of a stock.

While most investors look to buy stocks, the bear side of the duel points out the opposite side of the story -- reasons to consider selling shares. Quite often, the bear rightly predicts problems ahead -- ones that were visible to an outside observer but not yet priced into the stock. As this chart shows, failure to heed a real warning can prove costly:


Duel Date

Total Return Since Duel

Return vs. SPDRs*

Warning Signs

Krispy Kreme Doughnuts (NYSE:KKD)




Bad accounting, slumping sales

Electronic Arts (NASDAQ:ERTS)





Starbucks (NASDAQ:SBUX)




Saturation, valuation

Advanced Micro Devices (NYSE:AMD)




Wrong end of a price war

Bed Bath & Beyond (NASDAQ:BBBY)




Poor store layout, limited selections, stiff competition

New York Times (NYSE:NYT)




Competition, changing consumer demographics

Pfizer (NYSE:PFE)




Expiring patents, weak pipeline

* Expressed in percentage points.

Since their duels, each of these companies has underperformed the SPDRs -- an exchange-traded fund that tracks the S&P 500. Worse yet, some of them have actually lost their investors a significant sum of money. The risks were well-known, in public, for all who wanted to pay attention.

Protect your money
Because there is no such thing as a perfect investment, and because there are always two sides to every analysis, any given stock will move up and down quite frequently. As our dueling bears have shown, even great businesses can easily become overpriced and headed for a fall. On the flip side, however, there are times when the worrywarts take full control of a stock and send it plummeting to well below its true worth. That's when value investors, like those of us at Motley Fool Inside Value, get interested in buying those same great businesses.

By always considering both sides of the story, it becomes that much easier to see those times when the market is driven to excess. Too much optimism? We sell. Too much pessimism? We buy. That's the simple truth to how we've managed to beat the market since our launch in 2004.

Make sure you're truly considering both sides of any potential investment. If this article has taught you to be skeptical enough not to blindly buy, congratulations -- you've already mastered the first step to becoming a successful value investor. As your prize, we'll give you a 30-day trial of Inside Value, free.

This article was originally published on Nov. 22, 2006. It has been updated.

At the time of publication, Fool contributor and Inside Value team member Chuck Saletta did not own shares of any company mentioned in this article. Electronic Arts, Starbucks, and Bed Bath and Beyond are Stock Advisor picks. Bed Bath & Beyond and Pfizer are Inside Value recommendations. The Fool has a disclosure policy.