The fundamentally flawed strategy

There are quite a few trading strategies out there. There are two I'd like to talk about.

The first is about trying to look for stocks that are relatively small, fundamentally strong, very under-priced and have not yet been spotted by the Wall Street eagles. This, at least theoretically should yield hundreds of percentage point returns over a few years.

While there is nothing fundamentally wrong with this strategy, it usually does not work. How many spotted Walmart in late 1960s, or Genentech in 1980? Very few. Even Warren Buffett did not. If you think you can be one of those who can spot these gems amongst the millions out there who trade in stocks, then you're looking at a probablilty of 1 in millions. I think its practically zero. Unless you're a big time risk taker, penny stocks would almost never be a good idea to invest in.

In the other fundamental strategy, you look for fundamentally good stocks, fair or somewhat underpriced (though "underpriced" is not absolutely necessary), that have an upward momentum, and find good entry and exit points, and most importantly, don't expect hundreds of percentage points returns in just a few years time. You don't sleep over your stocks but ride on the momentum and sell them. Timing and speed become your best friends.

While this second strategy never gives astronomical returns, it is more possible, probable and practical. Think about it.