Was This Stock a Mistake?

If you bought any one of these stocks a month ago, you may hate yourself today:

Company	One-Month Return
Genentech (NYSE: DNA)	(16%)
Garmin (Nasdaq: GRMN)	(24%)
International Game Technology (NYSE: IGT)	(14%)
MEMC Electronic Materials (NYSE: WFR)	(11%)
MGM Mirage (NYSE: MGM)	(13%)
Sirius Satellite Radio (Nasdaq: SIRI)	(10%)

Sure, they looked like good ideas at the time. So was it a mistake to buy these stocks? Or are these still good ideas that just haven't worked out yet?

What's behind door No. 3
According to money manager Wally Weitz, it's either one or the other. And since not many stocks go up -- and keep going up -- from the day that you buy them, the key to investing successfully is to separate the mistakes from the good ideas.

Because if you have a great idea that is now 10% or even 20% cheaper than it was, you can make a lot of money by buying it again.

How now brown cow
The way to separate good ideas from investing mistakes, for Weitz, is to track his investing thesis against the progress of the business he's invested in -- not the stock price. He says, "What we really look at is to see that our businesses are performing the way they're supposed to -- and that the business value is going up even if the stock price isn't."

To really maximize profits, he told shareholders in a recent call, "We really can't wait for the 'all-clear signal'" from the market to buy a company like Lowe's (NYSE: LOW) -- whose near-term fortunes will wax and wane with housing and consumer data.

But if Lowe's or Garmin or IGT really is a promising long-term business, then those near-term wanes can be the smart investor's best friend.

Buy low? No, buy lower.
Weitz isn't the only smart investor who thinks that way. Our Motley Fool Hidden Gems advisor Bill Mann confessed during a recent presentation that "I've made most of my gains on my second of third purchase of the same equity. That means the price was lower but the business quality was the same or better."

That guiding principle is at work in our Hidden Gems portfolio today, where our aim is to identify the best small companies for our investors using fundamental, bottom-up business analysis. Yet we don't always get the best companies, and we're not always spot-on with our timing.

Fortunately, by finding great companies and doubling down on fantastic operators such as Middleby and Ctrip.com, our picks have been able to beat the market by more than 24 percentage points on average.