“Buy Low, Sell High”
Buy low and sell high is a phrase that has often been heard, but, not often followed in the investing arena. It seems like an easy rule to follow, buy stocks or real estate when they have declined in price more than value and then sell when the price advances above the value. Even experienced investors talk a good game about buying low and selling high only to actually do the opposite. Think about it; when everyone is excited about buying property or stocks it is usually when the prices are high and everyone is driving the price higher. When people are afraid or worried and selling it is when their property value is down or in decline and their stocks are down or declining. Think about your own situation; are you worried that the stock market is down 15% from its high in the past year and selling? Have you seen housing values decline 30% or more in some areas and thought about selling your home or investment property? If you followed this simple saying you would look at these situations as “fire” sales and want to be a buyer of these investments.
Buy low and sell high is a phrase that has often been heard, but, not often followed in the investing arena. It seems like an easy rule to follow, buy stocks or real estate when they have declined in price more than value and then sell when the price advances above the value. Even experienced investors talk a good game about buying low and selling high only to actually do the opposite. Think about it; when everyone is excited about buying property or stocks it is usually when the prices are high and everyone is driving the price higher. When people are afraid or worried and selling it is when their property value is down or in decline and their stocks are down or declining. Think about your own situation; are you worried that the stock market is down 15% from its high in the past year and selling? Have you seen housing values decline 30% or more in some areas and thought about selling your home or investment property? If you followed this simple saying you would look at these situations as “fire” sales and want to be a buyer of these investments.
What does this mean?
All investors agree that buying low and selling high is a great idea, at times this can also become buying high and selling higher. Curiously, a declining stock price or home value doesn’t seem to attract many buyers. In fact it often times results in just the opposite and even selling by people who already own it. This is contrary to the belief in buying low and selling high and even contrary to the purchasing habits of smart shoppers in general. Suppose you are shopping and find a nice watch you are interested in buying that is selling for $1500 in a jewelry store. You want the watch but as a smart shopper you want to find the best deal. If the following week the store advertised it at $1600 would you feel compelled to purchase the watch at this higher price? Unbeknownst to many investors this is exactly what they do when “panic” selling as an investment goes down and “excitement” buying as the investment goes up, the opposite of smart investing. A smart shopper would wait for that watch to go on sale for $1400 so that they may purchase $1500 worth of watch for $1400. This is just as an intelligent investor would identify an investment they want and wait until it is on sale so they can get what they want at a cheaper price.
All investors agree that buying low and selling high is a great idea, at times this can also become buying high and selling higher. Curiously, a declining stock price or home value doesn’t seem to attract many buyers. In fact it often times results in just the opposite and even selling by people who already own it. This is contrary to the belief in buying low and selling high and even contrary to the purchasing habits of smart shoppers in general. Suppose you are shopping and find a nice watch you are interested in buying that is selling for $1500 in a jewelry store. You want the watch but as a smart shopper you want to find the best deal. If the following week the store advertised it at $1600 would you feel compelled to purchase the watch at this higher price? Unbeknownst to many investors this is exactly what they do when “panic” selling as an investment goes down and “excitement” buying as the investment goes up, the opposite of smart investing. A smart shopper would wait for that watch to go on sale for $1400 so that they may purchase $1500 worth of watch for $1400. This is just as an intelligent investor would identify an investment they want and wait until it is on sale so they can get what they want at a cheaper price.
What does this mean to us?
With this mantra in mind we may want to look at current opportunities or “sales” that are going on in the stock and housing markets today. If you were looking at investing in property before there may be a good “discount” on that same property today. The same holds true for stocks. If you had your eye on a particular stock last year or even just getting started in stocks last year due to the record highs now may be a good time to invest as many good stocks are on sale right now.
What's on sale?
Currently there are many opportunities in high dividend paying trusts and preferred stocks. They are on sale right along side all of the other stocks yet still pay the same dividends they paid when the stock price was much higher resulting in a much higher yield percentage on your investment. There are also many opportunities in big city (SF, NY, Chicago, Seattle, etc.) real estate. San Francisco for example hasn’t seen a downturn in prices like much of the country but the market has turned into a buyer’s market, due to fewer buyers, and makes it a favorable time to buy.
Currently there are many opportunities in high dividend paying trusts and preferred stocks. They are on sale right along side all of the other stocks yet still pay the same dividends they paid when the stock price was much higher resulting in a much higher yield percentage on your investment. There are also many opportunities in big city (SF, NY, Chicago, Seattle, etc.) real estate. San Francisco for example hasn’t seen a downturn in prices like much of the country but the market has turned into a buyer’s market, due to fewer buyers, and makes it a favorable time to buy.
Easy Money Management’s editorial goal is to provide a forum for personal finance and investment ideas. My blogs and other features should not be construed as investment advice. An investor's best course of action must be based on individual circumstances.
Mortgage is on sale!!!
ReplyDeletePrime time to refinance your mortgage.
Homeowners facing resets on their adjustable-rate mortgages or hoping to refinance into less-burdensome loans may be the biggest beneficiaries of the Federal Reserve's surprise rate cut this week as mortgages continue to get cheaper.