Sell High, Buy Low

Now I won’t pretend to know what the stock market is going to do. It might implode, it might skyrocket, or it might stagnate — or even do all three on the very same day. Who knows. But I do know that one of the (many) strategies for making money in the stock market is “buy low, sell high”.

Doesn’t it sound different when you put it as “sell high, buy low” though?

Sell high & buy low is pretty hard to do. The prices of various stocks depend on a bunch of different factors, not least of which can be human emotion.I think putting it as sell high, buy low really emphasizes just how hard it can be to do exactly that. How do you know when it’s high? How do you know when it’s low? You might say that if the market jumps up 5% in a day, that stocks are now high. Or if it drops 5% in a day, that they are now low.

But that would be wrong. Or at least it might be wrong for your individual situation, depending on what stocks you’ve invested in.

Your investments are (almost certainly) not the same as “the market”.

After all, what is the market, anyway? Is it the S&P 500? The Dow Jones? The Nasdaq? It’s not like there’s one giant price out there for stocks that bounces along according to some prescribed rule.

No, the prices of various stocks depend on a bunch of different factors, not least of which can be human emotion.

The human factor

And it’s the human emotion that can lead to doing exactly the opposite of what you intend to do. It can cause you to buy high and sell low. To get in when things seem great, and out when things seem terrible. Often times (to the people who are doing it) that looks like “getting out right now for awhile until things improve”. It can make you feel better, but it’s more of a guaranteed way to lose money than anything else.

Most people don’t “get out for awhile until things get worse” when stocks are sky-high. Instead, they buy, because they hear about all these people making a fortune in stocks, and they want to do so too.

No crystal ball

Me? I just go ahead and admit that I have no idea what stocks are likely to do the vast majority of the time. Nor do I have the time to try to figure it out. So I buy a set amount each month no matter what, across a large variety of stocks. I know that I don’t have the guts to sell when it’s high (although I did consider doing so in mid-July, for the first time ever) and most importantly, I don’t have any way to tell with any certainty when they are low (so I wouldn’t know when to get back in.) So I use buy and hold.

And since I don’t know what I’m doing, I only invest money I can afford to lose completely anyway. I would be very sad if I did, of course, but it wouldn’t really matter, because I’d still be able to eat.

Do you invest in single stocks? What about mutual funds or ETFs? Or even specific areas like a gasoline etf? If so, what’s your strategy, and how has it worked for you?

One comment

  • I buy small single companies that pay dividends, EM, and oil companies into the decline. Unfortunately it hasn’t worked out that well compared to the S&P 500. I’m going to stick with it and hopefully we see a market recovery.