Should I buy beaten down stocks or index funds?

As I sold China Telecom do to risk Morning Star warned me about, I started thinking I needed to do more indexing. I usually tell people that I put most of my money in index funds and then a little money I manage actively investing in gold stocks and REITs in an effort to diversify.

Of course, my regular readers will know that’s not true. For example I own some Marvel. That stock has taken quite a beating (I’ve owned it before and sold at around 30 a while back – then bought back in around 20) and I was thinking this morning about buying more. Next thing I know the stock’s up 7% to 17.24 as they raised revenue forecasts for next year. I haven’t bought more MVL yet (still thinking).

I was also looking around for good companies with beat down share prices because of my OVTI story. I had bought it back in June of 2004 after some bad news and sold it today – it was up around 70%. Somewhere around that time MBNA (the credit card company) also went way down and I thought I should buy, but didn’t. Share prices doubled in the next few months.

So it’s certianly possible to buy good stocks cheap when investors overreact and turna nice profit. Even beat the market. Of course one day one of those stocks might never recover…

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