Anatomy of a Great Trade: When Is Buying Something At 50% Off A Bad Idea?

by | Dec 8, 2023

Great trades don’t always come from one system or one style of trading.

Anyone who tells you there’s only one way is giving you bad information.

Yes, great trades come from stocks doing well and then breaking out to new, outstanding highs.

But as Mr. Buffett will tell you, Great Trades can also come from picking stocks that are temporarily knocked down. 

When is buying something at 50% off a bad idea?

Almost never. 

And here’s a recent example.

About a month ago, I ran a scan for stocks that are oversold. 

What does “oversold” mean? In this case, it means the stock is at the lower band of a long-term Bollinger Band™ (length 800, standard deviation 2/-2).

One of the stocks on the scan was SPR (Spirit Aerosystems). 

Here’s the Daily chart:

On October 16th, the price was at $17.04. It had hit and bounced off the lower band. 

What was SPR “worth” at the time? For me, fair value was up at the white line at $34.70. If it hit that level, that would be a very nice trade.

And, as you can see, SPR has bounced and is hypothetically up over 60% since mid-October.

Great trades can come from great value. 

Don’t let anyone tell you differently.

Happy trading,

— Scott Welsh

What to read next