BUY LOW- SELL HIGH

BUY LOW- SELL HIGH

Buy Low .. Sell High, such a succinct and simple investment concept. Almost makes it sound easy, doesn’t it ? But, as they say, if it was easy, everyone would be doing it. I have found that a low price is a subjective issue. My personal definition of a “low price”, is the cost of something that drops significantly shortly after I buy it. Car, house, stock…it doesn’t matter. In fact, sometimes I think I follow the Buy High, Sell Low strategy.

Let me be clear, playing the stock market is gambling, with more than a slight edge to the house. It may be playing with an educated guess, but its gambling none the less. Yes, over time many people make money in the market, but a lot of people loose and loose big.

The average small investor uses the buy and hold investing method (possibly better defines as, The buy and hope method). In the past, if you bought a stock and just held it long enough, you would make money. We’ve all heard the story of the little old lady who made millions because she bought IBM 40 years ago and just rode the price up. Well, I noticed on the internet this week that Gm said they had their worst year since 1945. Today, you can buy a stock and it will head down and never see your entry price again. (so much for buy and hold).

Of course, there are tons of T.V. info-mercial “investment experts”, that claim to be able to teach you the exact point to buy and sell at. It’s so easy, you can stay home and only work 15 minutes a day and be rich. I think, they are the only ones getting rich, pedaling that bull.

To be honest, I have to admit, that several years back, I fancied myself as a bit of a day trader. The market was soaring, and I was taking advantage of small daily fluctuations in stock prices. Buying and selling on a daily basis and actual making a few dollars. Now, I not trying to say that I was a Warren Buffet, or even a Jimmy Buffet, for that matter, but I was knocking down some frequent profits. The truth be know, I had diluted myself into thinking I was a stock trading genius.
(I still may be a genius, just not a stock market genius). Anyway the market changed and I got caught holding some stock that in retrospect, I just paid too damn much for. (still own it to this day..I’m consoling myself by saying its only a paper loss., but that’s like calling loosing an arm, a flesh wound)

Granted anyone can buy stock, any broker or internet trading site can execute a trade for you. The average investor buys on impulse, or because his brother in law gave him a tip. Maybe he has just read an magazine article on a dynamic new company, or he feels he is privy to some type of secret trading information. Others buy shares, because they just bought a hammer at home depot and had to wait in line 5 minutes for a cashier, so business must be good.


Another common misconception is that you can’t loose much trading in penny stocks (news flash: the reason they are selling for pennies is because they are shit). We’ll the thinking is that if I buy they stock for $1.20 a share, I can only loose a buck or so. The reality is, weather the stock costs $1.20 or $120.00 per share, when it goes to zero, you have lost your entire investment..(which is often the case..zero is zero)

Most of the stock market is driven by greed. Small investors are usually the greediest and the most emotional investors. They buy and stock and then refuse to sell it as they watch it plummet. They will ride the stock down, hoping it will go back to their purchase price, so that they won’t lose money. The large and institutional investors are cold hearted sharks, which have long since disposed of their emotions. They have stop losses in place as well as automatic trading triggers.
They manage their losses and take their gains, and leave the hoping and praying to the little guys.

Your probably receive calls from brokers all the time.. They always seem to have a stock or investment suggestion. Remember they get paid on trades, weather you make money or not. Also, they seldom will make you aware when they have a position in the very stock that they are encouraging you to buy. That represents what I would refer to as a conflict of interest.

There is a certain satisfaction in buying stock. In once sense you become a part owner in the company that you invest in, but don’t expect a key to the executive washroom. Your ownership has very little in the way of rights attached to it. You are more like a silent partner. Of course your one share or vote will entitle you to attend the annual stockholders meeting, but in reality, how many of us really attend. Unless you have a controlling interest in the company (translated: a hell of a lot a shares) you are just kind of along for the ride. Don’t expect a phone call every morning to fill you in on company objectives or to ask your preferences on important company matters.

Last but not least, don’t expect that just because a company has growing sales and profits ( or other solid fundamentals) that the stock value will continue to rise. There are a lot of other factors at work (like greed) Stock prices fluctuate on news: news of earning, political news, foreign news, the price of oil, and dozens of other factors that you or your target company has no control over. At the end of the day, the stock price is pretty much a supply and demand issue. You have group of potential buyers who think the price per share is a good value and that the company’s stock value is likely to increase, and you have a group of sellers that think the price is likely to stagnate or decrease and they want to unload some or all of their position. When both groups valuations merge, a sale is initiated.

Anyway, the old adage still holds true to make money: Buy Low and Sell high. The problem is pinpointing when the value is low and when the value is high. If I knew that, I have to change my name to the “Rich Italian Boy”.

P.I.B.