“Buy low…Sell High” Sound familiar? Good Morning Everyone! It’s been a few months since our last post. After spending several years analyzing dozens and dozens of investment charts and graphs as a stockbroker/financial consultant/and a middle-market institutional broker at two international investment firms, I saw the above graph and article this morning on Bloomberg. I couldn’t resist…I have to share my views and make a few comments…
As the saying goes, “a picture is worth a thousand words.” And this picture on the surface tells a lot. Based on my years of experience advising and consulting the general public, (both inexperienced as well as very experienced investors) on prudent investment management, I know most everyday investors and self-proclaimed savvy or experienced investors simply don’t understand the foundational principles of investing. The general principle is to buy low and sell high. In most cases, the general public invests in a manner that is the exact opposite…they tend to emotionally buy high, and in a panic… sell low. The savvy/experienced investors on the other hand do exactly what they should do…they unemotionally buy low and unemotionally sell high! How do they do this? The answer in general terms is simple, but it’s not easy. They do the following, but methodically:
- They don’t invest with emotion, they invest with discipline using financials/trading models etc. (which are all available to the public through their investment firms and online sources)
- They do their own homework first, by relying on their own research, good advisors (if they need one), and their own business sense.
- They don’t follow the crowd…they do quite the opposite. They buy when the public is emotionally selling or panicked, and sell when the public is emotionally optimistic and running up the markets.
The point is, if you want to buy low and sell high, you have to get into the mindset of the savvy experienced investors. Beginning with understanding where the markets are in the midst of the investment cycle…are they over-valued or under-valued? Are they at high or low valuations. And secondly, begin asking yourself (or your advisors) strategic questions. As you can see in the above chart, all three markets are at or near their all-time highs. Then depending on whether you are an existing owner or considering to be an/investor/or speculator, ask yourself the following questions:
- Are the markets (stock/bond/real estate) under-valued or over-valued?
- Based on what information and valuation data?
- What are your investment goals & objectives?
- What’s your time horizon?
- What’s your expected R.O.I.?
- Is it a good time to be either a buyer or a seller in any these markets right now?
- It depends…What’s your motivation?
- Are you an existing holder considering to sell…or an investor considering to buy…or simply a speculator looking for a short-term profit?
- Why do you want to buy/sell/ or hold in these markets now…is it due to need/long-term investment/speculation?
- Again…What’s your motivation?
- What’s your buy/sell discipline…your entry/exit points?
- How did you arrive at those entry/exit points…through emotion or through a careful analysis of financial data and momentum oscillator data?
- Again…What’s your time horizon?
- Again…What’s your projected R.O.I. given your time horizon?
In general…not always…when the general public’s interest goes one way (in terms of investing), you may want to consider doing the opposite (however do your own due diligence and research first, and don’t rely on others!). Generally, when it comes to “investment timing”, people tend to buy their investment assets at inappropriate times because they feel good or positive about the economy/the markets/or a particular company is popular or they’re afraid they’re missing out. When it comes to inappropriate investment timing on selling, it’s usually because the markets are diving and they simply panic. In either case the timing is off due to emotional investing and not methodical investing. That’s understandable…we’re human! That said, most experienced investors understand this costly emotional roller coaster and tend to avoid that ride by doing the fore-mentioned above. When markets have fallen and asset valuations are near their lowest price points in their market cycle, this often times presents an optimal time to begin acquire such assets. Likewise, when the markets are reaching new highs and the general public has taken an emotional buying position, this may be an opportune time to begin taking some profits off the table, and setting the cash aside to invest when prices soften once again.
Is this a simple concept…yes. Is it easy to implement…no. When it comes to investing, most people tend to take action based on their emotional instincts…which are usually wrong. Interestingly, the Bible also cautions us to not be ruled by emotions as ““The heart is deceitful above all things, and desperately wicked; Who can know it?” (Jeremiah 17:9…please understand this text in its context). So given the state of these markets, use your common sense…your business sense…do your own research…ask strategic questions, and make your investment decisions based on research and not emotion. This will get you closer to becoming a savvy, experienced investor with the mind-set and practice of buying low and selling high. We hope you found our perspectives and opinions to be insightful and helpful.
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