Many investors say that you "shouldn't try to catch a falling knife."
Well, I did, and it hurts.
I made a big, bold $12,500 bet on Ford Motor (NYSE: F) when I launched my $100,000 Real-Money Portfolio late last year and am now paying the price with a 16% loss thus far in 2012.
Six months ago, I suggested that shares were now too cheap and significant upside is ahead. Yet I broke a cardinal rule of bottom-fishing: Buy stocks only after it appears as if the downside risk to earnings estimates has been removed, and forward estimates are likely to be stable or even rise.
Yet Ford's announcement last week that international operations worsened in the second quarter, from an already dismal performance in the prior recent quarters, tells you that it was simply too early to buy this stock.
I had been sitting on a decent gain with Ford, but am now underwater. The fact that Ford is likely to lose more than $500 million in foreign operations -- in the second quarter alone -- is an event I simply did not anticipate when the year began.
The key question is: would I buy this stock now with fresh money? Normally, that answer would be no. As noted above, Ford's international operations are so weak that there is a real possibility the second half of 2012 brings even lower earnings forecasts. And if that were the case, I'd be selling my current holding in this stock.