David Lentz

Amazon, Apple, Google: Buying on the Way Down

Averaging in as one approaches a bottom is not a Bad Thing, not even an especially Risky Thing.

But determining approximately WHEN a bottom is at hand is A Very Risky Business.

Consider that IF this is truly the collapse of a global credit bubble, and not merely a housing bubble, that the bubble may still be inflating and has not yet exploded. Numbers of the amount Total Credit (government+corporate+... seem to show that it is still expanding, despite the gratuitous implosion of a lot of toxic debt and shrinkage of portions of the debt markets. Apparently, Ben Bernanke and other central bankers, intent on inflating our way out of deflation, have been creating credit at a sufficient rate to create a net expansion of the credit bubble. A pity that most of the credit they have created is being hoarded by those who got the bail-outs.

Imagine if, just as the housing industry is approaching a bottom -- say, sometime in the summer of 2009 as various mortgage restructuring programs build up a head of steam -- and housing prices are within 10% of having bottomed, suppose that the credit bubble finally pops. The most likely sign of that at this point would be a cascading series of sovereign defaults, with the USofA somewhere along the chain.

What do you think AAPL, GOOG and AMZN will be trading for at THAT point? And how long will poor Fred have to hang onto his purchases until they are breaking even? The only way Fred's scheme works is if we have a V-shaped recession, and if we are somewhere close to the inflection point. We could easily have neither of those things be true.

Granted, this is a worst-case scenario. But a better way to attempt value-based investing is by following the tenets of Ben Graham, the way Warren Buffett has tried to do so over the years. That methodology is a MUCH better way to pick entry points for purchases during troubled times.

The New 'Four Horseman' of Technology: Cramer Likes My Stock Picks

It was time to get on board a year ago.

Now it's time to chase the train.