Recovery shares and others that are currently out-of-favor will produce the best returns because buying them is the opposite of going along with the herd. The stock market takes things to extremes. Your job, as an investor, is to take advantage these excesses.
By spending time looking for recovery shares you are forced to go against the herd. This is an uncomfortable thing to do for most people who feel much more confident doing what the herd’s doing. If the press, brokers and everyone else is telling them that Tesla is a good company, then they want to believe that Tesla is a good company.
An indicator that the herd has gone in a particular direction is when many brokers or bulletin board writers are excitedly talking about and recommending buying a certain share.
It’s usually best to have a contrarian spirit.
Common sense says that joining with the excited ones would be a bad move because if the market in general is optimistic the share is probably already fairly or over-priced.
On the other hand, there are occasions when the market gets too pessimistic on things, focusing on the short term and missing the longer-term dynamics of a business.
Often an ideal situation is where things have
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