Price is what you pay. Value is what you get. - Warren Buffett

As a variation of value investing, some investors buy a stock when it has fallen greatly from previous highs. The assumption is that a stock can not fall any lower than it already has. Bottom fishers need to be really careful and analyse a companies debts and profit potential.

Warren Buffett made the remark that "When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that stays intact".

Great profits can be made by picking stocks that have been oversold beyond logical values, but a bottom fisher should be well aware of what caused the fall in the first place. If a major client pulls out of a deal because they ran out of funds, it will hurt the company's share price but not their long term earnings potential. This would be a better buy than a company who lost their big clients because the product was third rate.

On the other hand, sometimes management mistakes can be negated as stock values really plummet, a bigger or (sometimes) better player can enter the market, and the company can become a takeover target. Since a company making a takover bid has to get people interested in selling their shares, they must offer an attractive price to the shareholders. Sometimes there can be great resistance from the shareholders, especially those showing a loss, as they feel that the stock is fundamentally undervalued by the market. The company or person who is attempting the takeover must offer these people a price that exceeds the expectations of the shareholders, so as to woo them into selling their stock, to enable the predator to get a majority position in the stock.

A stock that used to trade at $10 might seem a great bargain at $5.00, but if after buying it falls to $1.00 or less, $5.00 won't seem like a bargain any more.

There is some evidence that "momentum" persists over short time frames and is reversed over longer time frames. A couple of articles down I have cited a few studies on momentum effects, read "Momentum investing."