Experts: Buying 'Bargain' Stocks May Leave You in the Basement

Monday, 27 May 2013 10:29 AM

By Dan Weil

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With the Standard & Poor's 500 Index having risen 16 percent so far this year, investors may be tempted to opt for the few stocks that have missed out on the party.

But hunting for bargains in this environment could be more trouble than it's worth, experts tell The Wall Street Journal.

"I don't believe the laggards are going to arise from the dead any time soon," Kim Forrest, a senior equity analyst at Fort Pitt Capital Group, told the newspaper.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 

All but 40 of the stocks in the S&P 500 have gained so far in 2013, indicating the underperformers are unlikely to catch up soon, experts say.

Just because a company has a low share price doesn't mean its stock is a good buy. The low share price may simply be a reflection of the company's problems.

So in an effort to avoid overpaying for a pedigree, you may just be purchasing just a dog.

Stocks that have dropped for six months to a year tend to keep falling for the same amount of time, Meir Statman, a finance professor at Santa Clara University, told the Journal. "Usually, losers continue to lose."

Ashvin Bachireddy, a partner at venture capital firm Andreessen Horowitz, has written a column for Business Insider titled "The Death of Value Investing."

He argues that the disruptive power of technology devalues the worth of value investing.

"With the rate of technology adoption accelerating, Internet being a way of life and software consuming the world, businesses who refuse to embrace or adapt don’t just slowly decline. They fall off a cliff and take their cash flows with them," Bachireddy wrote.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 


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