Legendary investor Warren Buffett is known for many things, including memorable quotes. Perhaps the most cited is his contrarian philosophy: investors should “be fearful when others are greedy and to be greedy only when others are fearful.” Of course, the problem with this sentiment is that it’s not clear which ideas are worth taking a risk on and which ones should be left in the garbage bin.
After all, if every security that encountered a bout of red ink was a good opportunity, then there would be no bear markets — and by default, no business implosions. Clearly, that is not the case.
So, the million-dollar question: how does one go about finding true discounted prospects in the market, the names with a higher-than-average chance of an upswing? I believe the answer comes from the principles of game theory. Essentially, you as the investor are locked into a competition with the market. Like any competition, you’re trying to look for vulnerabilities that will give you an edge.
Unlike traditional competitions with set rules and protocols, the stock market is an open system. That means exogenous factors could come in and disrupt the paradigm at will. Obviously, this entropy puts you at a disadvantage. On the other hand, the distinct advantage that you enjoy as a speculator is that you can pick and choose your battles.
Stated differently, you can sit on the sidelines and only enter trades that you’re comfortable with. This gives you the privilege of waiting for the hottest hand before you strike. After scanning over 500 stocks on Friday using a combination of discrete-state analysis and path-dependent projections, I have identified three beaten-down stocks that could potentially be primed for a comeback.
As a bonus, I also crafted profitability pathway charts that make the bull call spreads that I highlight much easier to understand in terms of potential risk and reward. Without further delay, below are stocks to place on your radar this week.
While an important player in the broader financial services sector,…
..
