Hypnotized by abject boredom, I picked up the 2009 Stock Traders Almanac in order to feel the joy of material acquisition. Needless to say, I’m not surprised to find it useless for trading, but the daily quotes are good bathroom reading. Thus, I will be plagiarizing each nugget of wisdom, and analyze its merit for my amusement.
“Major bottoms are usually made when analysts cut their earnings estimates and companies report earnings which are below expectations.” -Edward Babbitt Jr. (Avatar Associates)
Wall Street is full of this contrarian rhetoric, so take it with a grain of salt. Clearly bottoms are made during times of overwhelming fear, but this sort of generalization can give the wrong impression to naive investors. Getting involved with a company that is slashing its earnings and being marked down by the Street is psychologically challenging, and often requires years of patience to prove fruitful.