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No. of Recommendations: 2
Having said that, watch them totally turn things around now...

Hi ContraBull,

Haha! I totally hear you on that statement.

We see these big drops in price in reaction to an event or earnings miss or something and, if we're mostly bullish (like me) or like the company (often like me), our first reaction is "That's an overreaction and this is now a great buy!"

I'm slowly learning to stomp down on that reaction because when I've been right on it, it's usually caused me to be way too early. The biggest example I have for this is when Nokia announced disappointing earnings back in the spring of 2004 and the shares got hammered. Down something like 30% in a day or two. I jumped all over that, and then had to sit for months as the price continued to drift downward before finally making a turnaround. Lots of red on the portfolio listing for a while. Ended up making money on the investment, but I could have made a lot more if I had been patient and waited for most -- not just the initial -- pessimism had shown up in the price.

This past year I was able to put that lesson to good use. I had bought 2/3 of my targeted position in BP just a couple of weeks before the oil well disaster struck. Rather than jumping right away and buying more, I sat on my hands and waited until the summer before finally getting my last 1/3. That sitting still before purchasing let me buy the shares really cheaply and that 1/3 has made up for the losses of the other 2/3 so I'm at or above break even right now.

While I don't think the MUE way of looking at things is going to let me pick the bottom, it is keeping me from jumping onto every bit of bad news that hurts a stock price. That's why I'm staying out of Best Buy despite the haircut given after the third quarter results were announced in early December. It may help in staying away from "value traps" which Best Buy might be at the moment.


Getting back to Eastman Kodak, as you noted it has a lot of problems, but in this case, I think the market is calling this one correctly. It's had a real hard time ever since film cameras went the way of the dodo (or most of the way there). I can't even run the MUE calculator on it because it reported negative FCF over the past 12 months. In general (I hate saying "never"), I'm going to stay pretty far away from companies that don't even have positive free cash flow.

Cheers,
Jim
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