This article outlines the model I use to identify new investment opportunities.
Compression really just means a sell-off. In essence, what I look for is a fundamentally strong company that has fallen out of public favor. Thus, when a stock begins to sell off dramatically, it catches my eye.
At times, news, weak guidance, capex forecasts, and earnings concerns are often overreacted to by investors. This disproportionate fear and selling can drive share prices down further than I see fit, creating an opportunity.
Some stocks experience a warranted sell-off, where the lower price fairly reflects a structurally weaker business model, deteriorating fundamentals, or a permanent reduction in growth potential.
In these cases, the decline is not driven by emotion but by a rational reassessment of future profitability.
This is why the strategy doesn't work by simply buying a stock after it has fallen dramatically from its highs. Let's take Stellantis (Parent company of Jeep, Dodge, Ram, and more) for example. From March '24 to April '25, $STLA sold off nearly 70%.
The reasoning behind this represented significant execution and profitability issues, including steep profit drops, negative free cash flow, and weakening core markets... all of which seriously erode the company's outlook. In early 2025, Stellantis reported a €2.3 billion net loss in the first half of the year, driven by restructuring charges, U.S. tariff costs, and weak North American demand, while operating margins shrank dramatically compared to prior periods.
This negative structural shift has led to a struggle as the company tries to rebuild a strong foundation. As a result, the stock has been relatively flat since early March '25 while the rest of the broader market has seen gains of 10-20%.
Recent companies I've invested in have all followed this framework :
Company (Purchased Date) — Green symbolizes profit, yellow indicates break-even, red denotes loss (keep in mind I have sold my shares of some companies since purchase)
I have already discussed all of these companies in depth, and I have linked my respective articles if you would like to further understand my reasoning.
In general, however, most of these companies exhibited signs of relatively insignificant structural issues or future growth concerns that led to a significant downward move.
Ultimately, this strategy is about separating price action from business reality. Not every sell-off creates opportunity, but when fear and narrative drive a stock lower than its underlying fundamentals justify, I take that as a buying opportunity. I’m not chasing weakness or "trying to catch a falling knife"... I’m investing where the market’s reaction has outpaced the actual damage.
