Idea to improve performance

AI Summary

A value investor argues for buying undervalued stocks only after they have bottomed and shown upward momentum instead of averaging down into falling knives, and names Alibaba, Albemarle, Clorox and Copart as candidates at varying stages of reversal.

BABA — LONG The author argues BABA is undervalued against a Morningstar fair value of $258 and that the long-term chart shows the reversal is already underway, so the stock fits his preference for buying value names on the ascent rather than while they fall. The mechanism is a value gap plus confirmed price momentum, with the 5-year chart cited as evidence the turn has happened. He acknowledges being late to the move, which is the main stated drawback.

We're late to the party but zoom out to the 5-year chart and the momentum is clear.

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I was reviewing an investment journal I've kept for the last three years (I've been investing for 20 years, but in a less organized way), and a pattern came up.

Having an inclination for value, I would find good stocks that were dropping, and start buying them up. As the knife fell, I would keep buying, and then at some point, when it fell far enough, I got scared and stopped buying, thus missing the bottom.

Then the stock would sit there for months or even years. Many of them rebounded, and to my credit I've mostly held, but my IRR / CAGR has been worse for having purchased these stocks on the decline.

Instead, ideally we should be doing our buys on stocks that have great value, but have bottomed and now have momentum. Instead of on the decline, on the ascent. In other words, I've been buying the blue box, and I want to buy the yellow box (the example is MSFT):

[https://imgur.com/a/rQnQktO](https://imgur.com/a/rQnQktO)

I'm guessing that's happening to others here, judging by the posts and discussions around stocks that have been falling knives.

**So a suggestion for all of us:** **can we shift our thinking not to the stocks that are just dropping now and becoming undervalued, but the stocks that have bottomed, consolidated, and finally show signs of momentum?**

It's much, much easier said than done. I'm working on it. It goes against every bone in my investing body. So far I'm trying to sell less when a stock goes up. Next I want to actually add into appreciation for my value picks. This year I did it with USB, ALB, LAC, LAR, and HCC, but with very small additions.

The challenge is being able to call a reversal. While the names above reversed successfully, I unsuccessfully bought into ADBE thinking it had finally started to reverse. In this way, think of value investing as identifying (1) a stock that is undervalued and provides a margin of safety and (2) is ideally starting to turn around but has at least bottomed or nearly bottomed.

Anyway, this is my suggestion. Here are a few stocks that I submit for consideration: have they really reversed yet? Have they at least bottomed?

**BABA** \- Morningstar Fair Value of $258. We're late to the party but zoom out to the 5-year chart and the momentum is clear.

**CLX** \- Morningstar Fair Value of $163; calling this the beginning of a successful bottom may be premature.

**CPRT** \- Morningstar Fair Value of $47. This is one is food for thought, unclear if it's bottomed or not.

**ALB** \- Morningstar Fair Value of $200. Also food for thought. The rebound is clear, we're still well under where it once was, but this feels less like the bargain bin than before.

**What stocks do you think have already bottomed and are coming back around?**

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