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When things look bad, opportunity exists

I remember a very bleak time at one of the early companies I worked with. We had a good product, that was fully developed and entering the market in prototype form. It was well received by doctors and hospitals, and the success of our company look like a slam dunk. But we needed money. We went to banks, no dice! Venture capital firms, the same story. We issued stock and began selling to family and friends, but even at $1 a share, it barely moved. Finally, Mitsubishi bank in Japan loaned us enough money to pay salaries and rent for six months. That gave us enough time to approach the large pharmaceutical companies and give them our pitch. Right away we hit a home run, and were bought out at $8 a share. The family and friends who got in for $1 were thrilled. Those who didn't invest were kicking themselves.

Later on, another company I was invested in went through a similar situation. They had a commercial product on the market, but since it was somewhat revolutionary, the adoption rate was slow. With a questionable future, the stock price dropped to $3 a share, and stayed there for a while. The venture capital firm that back them was still bullish, so I held on to my position, even though I had lost 75% of my original investment. Finally, the market realized this was a truly great product, and sales took off. The company was bought out at $30 a share.

What's my point? With most companies, there is a time when the market questions the viability and success of its products. That questioning is what creates opportunity for investors, because along with it goes a lower share price. Our job as investors is to determine whether or not the products are viable and if management is capable of executing a workable game plan.

Remember, the best time to invest is when you believe in the future of a company's products, and the market isn't sure. Look at the early days of Microsoft, Intel, and Google. At that point of questioning, the opportunity was great. Now that the market is certain that these companies will succeed, most of the opportunity is gone. You're probably not going to double your money on any of these companies.

It takes guts to invest in companies with low share prices and questionable futures. Especially when the market is telling you that this company is a dog! But, that's how we make money. With time, you will learn that the market is often wrong, and occasionally great companies are undervalued and overlooked. Your job, should you choose to accept it, is to find these companies, and take your position.