Turnaround Opportunities

If you take a closer look at those who performed well for their clients, one theme seems quite evident - investing in turnaround situations is a solid way of making money in the stock market.

As a trader, I'm too painfully aware of this since I don't generally trade, or invest in turnarounds situations. The reason? I've frequently found that for every 10 turnaround candidate, only one or two tend to do quite well. The rest, as they say, just tread water or even worse, lose money. Still, the challenge remains, how do you spot turnarounds and narrow your focus so you eliminate the bulk of losers and laggards?

To be honest, I haven't figured that one out. And, even those who practice this strategy consistently over long-periods of time, will readily admit that the challenges are immense. So far this year, I've been amazed by the sheer number of people who are looking toward drug stocks like Pfizer (PFE) and Merck (MRK) as turnaround plays. The one thing that I have learned by following those who invest in turnarounds successfully is that usually the big turn comes when no one expects it to. For that reason, I'd rather stick with companies that are doing well already and have good forward prospects, than to count on a sudden and positive change in direction and business momemtum.

Why am I talking about this? I just thought I would share my views about this since I think too many individual investors spend far too much of their time, energy, and capital to turnaround ideas. I suppose it has to do with the desire to be proven right or early, but it may surprise you that the times I've personally made the most money in the market, is when I thought I was already too late or when I actually thought I was wrong, but later proven right. Perhaps that's why investing in turnarounds, while a profitable strategy for many, is something I like to avoid.