"The key to successful growth/momentum investing is making sure you sell early enough (see GRMN or CROX over the past 12 months). The flipside is that one of the keys to successful value investing is trying to avoid buying too much too early because then your average cost basis is much higher then what it could have been while you wait out the eventual recovery. My own view is that most people are way too quick to instinctively jump into "bargains" instead of being more patient and waiting for the much higher likelihood of even lower prices and valuations."



The problem is that it's so difficult to determine where the bottom is going to be and where the uptrend will begin, except in retrospect. Take Citigroup, for example. Several months ago when it hit $30/share it looked like a great value and it couldn't possibly go under $30. A few weeks later at $20 a share it had to have found a bottom and it was a great buying opportunity. Then it kept falling until the Bear Stearns bailout at around $18. The following week the financials shot up and continued to slowly rise in the next 2-3 weeks. The smart money agreed, the bailout showed that the fed was backing the financials, and it marked a bottom in these stocks.

Now, if you were using the "Don't jump in too early" strategy, you would buy after this, right? Citigroup was sitting around $23-24, and looked as if it had established an uptrend after forming a bottom at $18. Sure, you missed a few dollars at the bottom, but you would get most of the move upwards. Well, this week was awful for the financials and Citigroup closed down around $19.50. If you had bought after seeing the established uptrend, you'd be down 20 percent on your purchase. So how do you tell, except in retrospect, when to stop waiting and jump in?

I have no idea whether Citigroup's next move will be down or up. Was $18 the true absolute bottom, or will it fall further? It seems to me that using the strategy of only buying AFTER a stock has bottomed out is just as difficult as calling an absolute bottom.