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- No new trades.
While it's tempting to do some bargain hunting in light of the recent sell-off, investors might want to shy away from a lot of the big losers -- at least for another couple of months. Those stocks trading at or near their 52-week lows are apt to experience some difficulty sustaining much upward momentum due to the tax-related selling that typically takes place in October/November.
Come early November it should be safe to start accumulating positions in badly beaten-up stocks. Consequently, now is a good time to start your research on the bargain stocks that will turn next year's portfolio into a big winner. If you want to scout for some dogs, a good place to start is the list of new lows. You also might want to check out the underperforming industry groups. If you do, you will find a slew of construction, banking, airline, housing and precious-metals stocks to pick from.
If you believe the global economy will continue to grow at a relatively healthy clip, adding a couple of beaten-down construction-type stocks might be a good idea. Or maybe you think, as I do, that oil prices will pull back in 2008; in that case, airline and trucking companies might make some sense. Then there are stocks tied to the battered housing sector that look attractive if you believe the worst is already behind the group. Tough to imagine it getting much uglier.
Of course, once you've determined a strategy you will need to drill down to the core of the individual stocks to conclude whether the issues that triggered this year's decline were temporary or long lasting. If it's the former and the stock's management team is solid and its financials still strong, then you have a candidate for purchase. If not, then you move on and look elsewhere.
If you want to make serious money in the market you can't wait for the herd to tell you what to buy -- you need to be in front of the big moves. That can be a little scary, but if you do your homework the rewards are extremely gratifying.
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