With today's split market, having highly priced big cap stocks prospering, and low priced "value" stocks dying like rats, one is sorely tempted to predict when the roles will reverse. Or at least, one does try to determine when the big cap's will more or less mark time, while the value stocks make their long-awaited upward move.

This mind set, which many of us get to some degree, can be very dangerous. The great temptation is to say to ourselves "this is a great stock - it's gone about as low as it can go, and I think it's a helluva good buy." Sure it is buddy. You just do that, and you'll get the standard stock market spanking, along with an unforgettable lesson in "how low is low?"

If we knew how low is low, we would all get rich, instead of getting the hell kicked out of us from time to time. When a stock is supposed to be great because it offers much value and therefore much potential following a price decline by what you think is a substantial amount, and the stock is staying at the same lower price level for a short time, that is when value investors can make the wrong move and buy into a dangerous situation.

When stocks fall into disfavor, their period of decline is generally much longer than the typical investor would expect. This is particularly true of stocks that were once quite popular, and which had a lot of good analyst reviews. Once the stock disappoints the street, either on earnings and/or revenues, it takes a long time for the stock to recover from the subsequent price decline. You then have what is known as a "broken stock".

Just think of what happened to Micron Technology not too long ago. The stock ran up to 94 ½ in September of 1995, and then some negative news came in; I wasn't particularly interested in the stock, but as I recall it was due to news of weakening chip prices. The stock started to slip, and you just know that when it went to the 70's, a lot of people thought "hey - this is a damn good buy, it's down around 20 points; I'm going to get some". No doubt others bought when Micron hit the 50's, because they were getting a 40 point discount. The real stock market geniuses got in when it went to the 40's. I mean, who can resist a 50 point discount?

At this rate it's a real bargain! I mean wow! They're giving this stuff away. Count me in! Well, I guess that when Micron went to the 30's in early 1996, many Micron followers that had been on the sidelines had to take the bait, because a 60 point discount from the high is hard to resist. Well, in mid-1996, the once high-flying Micron Technology fell to 16 5/8! What a one- year nightmare!

Even though the stock went up from there, the message is clear. Playing the game of "how low is low" is a loser's game. Just as investors can go crazy on the upside as with the Internet stocks, they can be just as crazy on the downside, dumping "good" stocks as though they were trash. You must resist the temptation to try to buy at the bottom. Wait for the stock to form a base, where it trades in a relatively small trading range with relatively low volume for 3 to 6 months or more. Let your fellow investors get bored with the stock. Then maybe, just maybe, it might be the time to buy in. Stay tuned.

The Market Pro - July 13, 1998