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Stock Market 2008: Do You Buy High And Sell Low?

Every investor should know the phrase “buy low and sell high”. What that means is that it is best to buy stocks when they are at a low price and to sell them at a higher price. Buying low and selling high is how you make money in the stock market. Why is it then that there is such a temptation to do just the opposite: buy high and sell low?

Why is it so much easier to buy high and sell low? Stocks are different from other everyday things. When you go shopping for clothes or electronics or any other ordinary item and you see something that is on sale, you are more apt to buy it. A sale is a good thing for most merchandise. If a jacket was $100.00 yesterday and $80.00 today, it is still the same jacket but now you getting it for $20.00 less and are more apt to buy it.

Many people who buy stocks seem to have a different mentality. When the stock market is on the rise and stocks keep going up, investors have the tendency to want to jump in so as to not miss the boat. When a stock was $50 last month and $60.00 now, many investors are actually more inclined to buy at the higher price for fear of missing out. Even though the stock is more expensive now than it was a month ago, some investors can’t wait to buy at that higher price!

Conversely, a stock that is going down is actually on sale from the price it was a month ago. It is like the jacket that you were more inclined to buy and yet most investors find it more difficult to buy that stock at the “on sale” price. They fear that because the stock is lower and continuing to go down, the value of the company must be lower. Sometimes that is correct and sometimes it is not. With the herd mentality though, many investors get swept up in doing what everyone else is doing; buying when the stock is high. Then when it goes down, they panic and sell when it is low. Stocks for beginners is a hard mental battle in down markets.

This year has been a very difficult year for investors so far. I am tired of looking at my stocks every day seemingly just to see how much I have lost. Then, everytime the market does go up, it seems to go right back down again very quickly. Is now the time we shoud be buying? In my experience, every time the stock market has dropped a significant amount, as it has in the last six or seven months, if I would have bought my stock picks at the reduced prices, I would have made money. Unfortunately I am like most other people and have found that buying stocks in a down market is a very difficult thing to do.

  • 1

    I actually think you are wrong here.

    People are more tempted to buy low than to buy high. This is why so many people are loading up on financials… which they shouldn’t be buying. People think that just because the price is down, it will have to return to its original values, which is not true.

    The problem with the jacket analogy is that if you buy a stop that saw 20% of its value cut, you are no longer buying that same jacket… it is going to have busted out pockets and a broken zipper 😀

    Still an informative post though 😉

    Jim on April 3rd, 2008
  • 2

    Well I do know you are correct that some people load up incorrectly when something goes down thinking that it must go up again.

    I know it is more diffiult for me to pull the trigger when a stock is falling because I am afraid of the falling knife. I think many people buy way too high and then end up unloading for a loss when it starts going down.

    You know, Apple goes to 100 then to 120, 130,150, 180 and then you say, geez I gotta get in on this I can’t wait any longer. Before long the stock turns around and then you unload at 150 for a nice $30.00 loss.

    DayJobNuker on April 3rd, 2008
  • 3

    Dollar Cost average when stocks are low. I use sharebuilder and buy the same 10 stocks every week. So my cost basis is a lot lower then just buying in chunks. Plus it hurts less when the market falls.

    Remain Skinny on April 3rd, 2008
  • 4

    I agree dollar cost average but I did boost my buying here this last month so hopefully were do for a big up tick

    asia'h epperson on April 5th, 2008
  • 5

    Well the friend of mine bought some stocks of a cruise company that both of us used to work for. Now in Europe, when dollar is at all time low, he is loosing a decant money. I will recommend your site to him, a very useful tips, thanks for sharing.

    Jasko on April 6th, 2008
  • 6

    thats why i dont like to mess with the stock market too much…. so risky. Its like staying a weekend in Vegas; could lead to trouble -_-

    eXtraNeT on April 9th, 2008
  • 7

    I never get this right, even picking out the low ones, they just go lower 🙁

    Buy Dell people LOL!

    Diane Scott on April 9th, 2008
  • 8

    I couldn’t agree more. All the folks that jumped into the dot-com circus in its final year or two, probably felt safer playing in real estate a few years later! Fact it, the SMART investors, like Buffet, are always a couple years ahead of the game. Watch closely guys like him, not the crowds….great article.

    Jonas on April 11th, 2008
  • 9

    They need to change the rules so that the average investor could just as easily short the market, the same way it is done in the futures and forex markets. This way companies would be valued more realistically, right now it is all smoke and mirrors. It would not surprise me if stock market would keep going down down for the next 10 years.

    Carlos on April 11th, 2008
  • 10

    Its soo unpredictable these days. I am staying away from the stock market for awhile, lost too much money!

    Trends Depot on April 13th, 2008
  • 11

    Go to show you when the market is down and it’s time to buy there’s no cash in the reserves. Atleast for me that is true. A good advice is always keep some cash in reserves to buy the next great stock.

    George (Coffee Lover) on April 15th, 2008
  • 12

    I’ve been following VNGM (VANGUARD MINERALS CORP) for the past 4 weeks and have noticed some very interesting trends. First and foremost, I watched the stock dance around the low $.60 to, at times, mid $.70. But recently with the, not so pronounced news, of a poor quarterly report, the stock plummeted to as low as a $.25. This kind of made me excited as I was waiting for the perfect time to by this stock. Why is this the perfect time? Well, recently they they made the statement “We intend to return to our roots in the mining exploration field” (abandoned failing projects). Mining, after all is what made their name noticed in the first place. On top of this they have two new mine fields they are currently doing surveys on for Uranium. The person in charge of these two surveying projects is a man by the name of John Maddry, responsible for locating several Multi-million dollar mine fields in Nevada several years ago. If these two minds do contain a substantial amount of Uranium, watch the stock price quadruple – several time over. The interesting thing is, you won’t have to wait long, the report of their findings should be released as early as 1 to 2 months. I hope people will do there research on this company, I believe they will find an extrememly rewarding stock!!!

    Scottie on April 22nd, 2008
  • 13

    I think we’re getting closer to a bottom here. One more break to lower lows and a final capitulation will send us higher.

    stock seminars on October 6th, 2008
  • 14

    Should I sell my energy stocks( oil. natural gas) on a day when they rally thru the roof( 10,15,20%) and turn around the next day or a week later and buy them when they are in a decline, selloff thereby now owning more shares of the same stocks? Is that legal, and whats this wash sale? thanks.. kj in Norfolk, Va.

    Kelly J on October 18th, 2008