Anatomy of a Great Trade: Mastering Deep Value (AROW)

by | Dec 15, 2023

Today we’re going to look at another deep value trade.

Because, of course, there’s more than one way to win a match. 

On one hand, we can buy breakouts on Amazon in 2003-04 and do very well.

On the other hand, we can also buy stocks that have fallen deeply below “fair value” and ride them back up to where they ought to be. 

That’s how Buffett and Munger did it (mostly) and it can work for us, too.

Here’s an example.

In October 2023, I ran one of my scans that looks for “deep value”. 

For me, that means a stock that is down by its lower Bollinger Band™.

If we use a long-term moving average, it’s then fair to use that as a proxy for “fair value”.

And if a stock is down at the lower band while its fair value is far up above, we have a chance for a big win.

Back in October, one of the stocks that came up on the scan was AROW. 

Here’s the chart:

In October ‘23, it was even below its lower band and was trading around $17.50.

With “fair value” up at $28, that seemed like we had some great upside.

And, as you can see, it ran right up to our 800-day simple moving average/fair value. 

At that point we can take the 60% gain (in about two months) and move on to the next deep value stock. 

It’s fun to catch high-flyers. No doubt about it.

But it’s fun to buy things that are on sale, too.


Happy trading,

— Scott Welsh

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