“It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower” – William O’Neil.
I am sure there are a ton of investors that found success with the buy low sell high approach. But, since it is not as easy as it seems, I prefer to buy high and sell higher. Why?! Because it doesn’t take a genius to realize that for a stock to reach a new high, it has to break it is older highs.
For example, Apple (the world’s largest company by Market Cap) reached a new high of $1.34 (Split adjusted) in March 2000. Then, it dropped and didn’t break that level until January 2005.
Let’s say you bought the stock when it seemed super low in January 2001 around $0.3 (split adjusted), you would have sat with the stock for almost 3 years with ZERO movement. Instead, let’s say you waited until it pegged its older high in January 2005 and bought the stock, today, you would be sitting with 10,000%+ of gains. If this percentage is not very clear, let me put it in simple terms. If you would have invested $1000 in January 2005, you would be sitting today with $100,000+. This is assuming you haven’t added anymore when Apple reached newer and newer highs.
What I am trying to communicate here is, why buy the “looking so cheap” and beaten-up stocks and hope they go up when you can buy what is showing clear strength?
Stocks that are beaten down are cheap for a reason, there is clear and evident selling happening in it. If you buy it cheap, it can, and probably, will get cheaper. This is what I see as GAMBLING.
Not convinced? Take a look at the below charts.
Tesla 1000%+
Netflix. Sep 2013 to Nov 2021. 1400%+
If you are interested in studying previous winners, check out the charts for AAPL, MSFT, TSLA, NFLX, GOOGL, OXY, etc. Go to any chart of a previous winner and it will become very clear that buying high and selling higher, is a simple, yet successful approach. However, you still have to stick to:
- Rules, rules, and, more rules.
- Discipline. Do your homework, Know what to buy, when to buy, and what the market conditions are. And stick to your rules.
- Risk management. Not all your trades will perfectly work, CUT YOUR LOSERS and LET YOUR WINNERS RUN. Remember, if you are not willing to take a small loss, you will be forced to take a big one.
Take a look at my previous article: https://thndrclaps.thndr.app/2022/07/07/can-investors-time-the-market/
