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B U Y W H E N T H E R E S
B L O O D I N T H E S T R E E T S

by tmfflightsuit

www.fool.com March 28th, 2007

The Dow Jones Industrial Averages recent single-day 400-point drop may
be weeks behind and thoughts may be turning toward an early interest rate
cut. But I promise another huge decline is never too far off. Its
during
these cautious but optimistic times when investors should really mentally
prepare themselves for another blood-letting.
Baron Rothschild, the quintessential banking opportunist, is said to have
advised that the best time to buy is when there is blood in the streets. I
agree. An investor who embraces this axiom casts aside the bears and turns
bullish in times of maximum pessimism.

The bloodiest days

Imagine picking up a company such as Yahoo! (NASDAQ:YHOO), which

was beaten down from all-time highs of $108 to about $4.50 at its lowest dur-
ing the broad sell-off of technology stocks in 2000 and 2001. Yahoo! today
sells for approximately $30 per stub. Thats a greater than 550% return. And
sure, telling you to buy a fairly risky Internet company like Yahoo! in those
days is Grade A 20/20 hindsight. But consider picking up the more stodgy
Walt Disney (NYSE:DIS) during that same period. Your returns would still
be a robust 160%.
The point is, you can easily prot from a ghastly investing environment.
When everyone else is selling, it may just be the best time for you to step in
and pick up a great company for cheap.

Sometimes the blood is your own

But Mark Morbius reported in his book Passport to Prots that there is a sec-
ond part to Rothschilds quote -- one that is perhaps even more impressive
and intellectually inspiring. Buy when theres blood in the streets, even if
the blood is your own.
That means being condent enough in your analysis to buy stocks you
already own even when the market is telling you your analysis is wrong.

And its hard to do. There have been plenty of times when I have sworn off
good companies when chips were down. I advised family members to ee
from Amgen (NASDAQ:AMGN) when it got battered in early 2002, only
to see it nearly double by the end of 2006. Now Amgen is being battered
again.
In the past year alone, my personal holdings of miner Coeur dAlene
(NYSE:CDE) have seen precipitous falls. Ive lost about 34% on that stock.
Theres blood in the streets of the silver industry and much of it, without a
doubt, is mine.

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Take advantage of a great opportunity

But Coeur dAlene is still a strong operator with a bright future, as
was
Amgen during its 2002 sell-off. And today, even though Ive gotten ham-

mered on the stock, Im just as convinced of Coeur dAlenes prospects as

I was when I purchased it months ago because the fundamentals havent
changed.
Human instinct persuades us against staying aboard a sinking ship. Its an
innate survival tactic that affects the way in which we invest. In many cases,
this instinct alerts us to situations that would otherwise doom our portfolio.
When I see accounting malfeasance or strong insider selling going on this
instinct kicks in and I get scared. But when I see a terrorized market thats
unjustiably killing great companies including my own, I get excited.
Seeing red on your portfolio is nothing to be afraid of. Admittedly, too

much red is just at-out unacceptable, but sometimes its opportunity star-
ing you in the face.

Warning and opportunity

While Rothschilds quote is a bit visceral, its right on the money. At our own
Motley Fool Hidden Gems service, which looks for stocks that y too low
for most investors radar, we have some amazing companies that have seen
some bloody days of late. For instance, specialty bed manufactuer Select
Comfort (NASDAQ:SCSS) is some 30% off its highs. Yet its a solid company
with growth prospects, good management, and a superior product.
The
recent fall just means its cheaper. The same can be said for another Hidden
Gems recommendation Flamel Technologies (NASDAQ:FLML) -- which has
shed 20% in the past two months.
So when it comes to your own portfolio, I advise you to think twice before
selling that dog thats lost money. If your original analysis holds, it may ac-
tually be time to hold steady -- or buy more. And if youre looking for some
fantastic stocks to buy, many of which are off recent hights, I encourage you
to look at our Hidden Gems small-cap investing service. A risk free 30-day
trial is yours to enjoy.
Fool analyst Nick Kapur owns shares of Coeur dAlene. Yahoo!
and
Disney are Motley Fool Stock Advisor recommendations. Select Comfort

and Flamel Technologies are Hidden Gems picks. The Fool has a disclosure
policy.