| Hello Fellow-Investor.
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| | Companies with high returns on equity,
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| When stock markets drop, especially
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| | little or no debt, that aren't affected
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| significantly, it is obviously not very
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| | too much by economic trade cycles and
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| thrilling for an investor unless he
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| | that operate in areas where competition
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| invested in a down market.
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| | is less brutal. Especially in the
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| But a dropping market might not
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| | long-term. Because in the event of a
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| necessarily be such a bad thing after
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| | recovery, for example, Wal-Mart is more
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| all. Down markets – more often than
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| | likely to recover sooner than a small
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| not – can present perfect buying
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| | specialty retailer. The owner of smaller
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| opportunities.
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| | companies may find himself waiting
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| Turning Bad News Into a Lucrative
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| | considerably longer for his shares to
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| Opportunity for Your Portfolio
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| | realize their full value in the market.
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| Even the best companies, industries, and
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| | Does management have an excellent track
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| sectors fall out of favour from time to
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| | record?
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| time. A well-informed investor, with some
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| | The best indicator of future performance
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| cash and a firm understanding of the
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| | is past results. Great management tends
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| situation, can calmly get into a
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| | to produce great results for everyone
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| turbulent market and buy up shares of
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| | involved, including the shareholders.
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| these underdogs at a fraction of their
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| | If a company has encountered significant
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| value. Or, you can buy put options and
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| | problems for consecutive years while the
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| profit from a market that's in a
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| | industry in which it operates prospers,
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| downtrend.
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| | it is likely that management has been
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| But how do you know which companies are
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| | unwisely retained. In such cases, you and
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| permanent losers and which are
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| | your pocketbook would be better off
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| undervalued gems? Consider the following
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| | ignoring the empty promises of executives
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| to determine if you should invest your
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| | who are only interested in keeping their
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| money or keep it stashed in cash:
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| | jobs.
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| Is the problem temporary or long-term?
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| | The quality of management question is
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| You must be careful not to simply invest
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| | perhaps one of the most important an
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| in a company because everyone else is
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| | investor must pose to himself. Coca-Cola
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| running from it; sometimes there is
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| | is an excellent example of how good
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| reason to run! Even after the share
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| | management can make a great company even
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| prices of companies such as Lucent and
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| | better.
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| United Airlines had been cut by 75%, they
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| | When Roberto Goizueta became CEO the
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| still did not constitute a good
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| | business became a truly global
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| investment. There are many companies that
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| | powerhouse, throwing off cash to its
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| aren't worth buying at any price. Trash
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| | stockholders faster than they could gulp
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| is trash, regardless of how much you pay
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| | it down.
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| for it.
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| | Are you patient enough able to wait out
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| In some cases, problems arise that are
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| | the storm?
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| the result of one-time mistakes on the
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| | After you've determined that the problem
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| part of management. During the Savings
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| | a company has is temporary, management
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| and Loan crisis, for example, bank stocks
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| | has an excellent track record, and the
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| were beaten down to almost comical
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| | business possesses excellent economics,
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| levels. An investor who mentioned he was
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| | there is still one question remaining
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| purchasing shares of these institutions
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| | before you should purchase a seemingly
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| was immediately scorned, mocked, and
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| | undervalued stock.
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| considered crazy by even close friends.
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| | Are you patient enough to wait out the
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| At the same time, firmly entrenched
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| | company's troubles? Do you have the
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| companies such as Wells Fargo (which
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| | luxury of waiting for the company's value
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| boasted a solid balance sheet,
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| | to be reflected in the share price?
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| established reputation, top-notch
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| | Bear in mind what I always preach.
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| management, and steady customer base),
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| | "Trading is a business and should be
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| were hit just as hard as banks of lesser
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| | treated like one!" It's not a lottery
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| quality.
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| | game.
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| At some point though, those that had
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| | As investors, we know that a good company
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| exercised courage and relied on their
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| | will eventually be recognized by the
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| analytical judgment by purchasing shares
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| | market; we just don't know when.
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| in such banks found their portfolios much
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| | In the short run, anything can happen.
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| fatter. Remember the words of a very wise
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| | There is nothing to stop an undervalued
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| man; "you are neither right nor wrong
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| | stock from falling significantly further
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| because the crowd agrees with you; you
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| | in price.
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| are right because your analysis says so."
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| | You must have the time to wait for the
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| Is the business an excellent business
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| | inevitable result of wise investing,
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| with a suitable market capitalization?
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| | regardless of whether it takes a week,
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| In your attempt to look for under
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| | month, or several years. In the end, your
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| valuated companies you should focus your
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| | sound analytical judgment and unshakable
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| interested more on large market leading
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| | patience should be rewarded.
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| companies instead of smaller ones.
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