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Author: PosFCF Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 455590  
Subject: Re: 36% chance of beating the market Date: 4/1/2013 9:40 AM
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Yoda

BOTTOM LINE for the average investor is you should be looking at the “new highs” list instead of the “new lows” list if you are investing in individual stocks.

While that may work some of the time, it is also the basis for the "Greater Fool Theory" of investing: Buying at a high price today hoping to sell it to a greater fool than myself sometime down the road.

Logically, if so many stocks do poorly over the run of their existence, it makes sense that if one were to consistently buy at new highs, they would also tend to have a negative overall experience as the majority would then begin their descent into the dustbin.

A number of years ago I ran across a paper done by a firm called Tweedy, Brown. They have done a number of papers and run most of their funds by the premises outlined in those papers. The one I linked to is simply called: "What has worked in investing" I found it well worth the read but, being a redneck, don't follow it to the letter.

They list 5 main criteria:

1. Low Price in Relation to Asset Value
2. Low Price in Relation to Earnings
3. A Significant Pattern of Purchases by One or More Insiders
4. A Significant Decline in a Stock's Price
5. Small Market Capitalization


http://www.tweedy.com/resources/library_docs/papers/WhatHasW...

Poz
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