Saturday, September 6, 2008

Stock Picking Strategies: Cherry Picking

There are a number of stock picking strategies. One of them is known as cherry picking. The idea of cherry picking is to buy those stocks which are available at rock bottom prices or which are going through bad times due to various reasons. Cherry picking is a sure short strategy but something that requires a lot of patience from the investor. It is quite possible for the investor to lose faith and exit quickly, which would either result in a loss or in minimal profits.

So, how do you pick the cherries? If you were in the US, should you buy General Motors (GM)? I'm a member of Social Picks, the social networking site on stocks that Reuters runs. I am upbeat on General Motors but a number of other investors feel that it is an absolutely wrong and foolhardy choice. But wait a bit... GM is a pretty old company, which is going through really bad times. There are fears that the company could fold up. The stock price is really down. But does it mean that the company would file for bankruptcy protection? Not really.

The company is going through what are known as classic recessionary conditions. Accumulating such a stock in small and regular quantities is not a very bad idea. It has its risks and it requires a high degree of patience on part of the investor. But it also has the potential of creating decent profits. The only risk with a company like GM is if it were to file for bankruptcy or were to be bundled out for a cheap price, like Bear Stearns. Unless that happens, any worse case scenarios aren't so bad. The company could recover from high oil prices and falling sales. The United States could recover from the recession. If GM performs very badly, it could be taken over by another foreign company, which might as well have a positive effect on stock price.

So, if you think logically, cherry picking isn't such a bad idea.

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