The Dark SaaSpocalypse Cloud We Could See Through
Some of the best opportunities of an investing lifetime arrive disguised as disasters. Here are two recent storms that show this idea in action.
Overview
Some of the best opportunities of an investing lifetime arrive disguised as disasters. A frightening headline breaks, the crowd bolts, and a stock sinks under a storm of pessimism. Most investors see only the storm. A few see through it – and the crucial word is see. This isn't about hunting for whatever has fallen furthest and hoping. It's about knowing a business well enough that when the crowd panics, you can tell a broken thesis from one merely being tested. Conviction comes first; the cloud just offers a better price to act on it.
TMF co-founder and Chief Rule Breaker David Gardner has a name for this. In Rule Breaker Investing, he writes: "Detecting competitive advantage where others see vulnerability or weakness sets up the most lucrative investing opportunities. I call these situations 'dark clouds I can see through.'" His image is pure Peanuts: "Picture a storm cloud bursting with lightning and rain directly over Charlie Brown's head."
Details
The catch, he cautions, is real: "You have to show humility in the face of so much confidence on the other side. You may very well be wrong." But when you're right and you hold, skeptics turn into converts and the stock "climbs the proverbial wall of worry." Two recent storms show the idea in action.
Source
Originally published at www.fool.com.