I am thrilled to be writing for RealMoney and TheStreet.com, and would like to extend my thanks to everyone for giving me the chance to share my views.
I focus on the areas of new media, alternative energy, medical technology and next generation design and manufacture technology. The focus of my columns will be to try to identify situations that have gone unrecognized by the market, or mispricings created by market inefficiencies. Because of the way the market operates, there is great opportunity to uncover these situations.
For starters the coverage universe has shrunk, and that has divided the market into two areas:
- Stocks that languish waiting for a catalyst;
- Stocks that are overanalyzed momentum vehicles.
I tend to focus on the first group, and that's because individual investors need to know where they stand in the investor hierarchy: at the bottom. The only real advantage available to individuals is information, and the only place to get an edge is with less-followed, small- to mid-cap stocks. Distorting matters further, stock prices are dictated by the collective actions of individuals applying unrelated, differently motivated and mostly erroneous logic to their decisions.
But I say that's great. The nuttier the logic and the more superficial the analysis, the better. It can only create more opportunity for a well thought out, rational approach to stock-picking.
I seek to provide ideas that improve returns while they mitigate risk. I achieve this by applying strict valuation criteria, diversifying among 25-30 positions and adding some shorts to the portfolio to hedge against a market fall. If I had my way, I would rather be exclusively long, but when the market gets in a selling mood, everything gets sold. I would rather mitigate some gains while protecting against an unexpected market fall.
Before I get to my first idea, let's briefly discuss Efficient Market Theory. For those of you unfamiliar, it is a theory they teach you in business school suggesting that information is disseminated so quickly and efficiently that stock prices generally reflect all relevant information and are priced correctly.
What a bunch of nonsense.
Steven Bulwa
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