Buy Low, Sell High: You Are Stupid
Sometimes it’s really tough to spot someone that doesn’t know what the hell they’re talking about because they’re just really good at hiding it.
But other times it’s so damn obvious it drives me crazy. Take investing—if you’re totally ignorant about it then you can always go to the well with stupid, generic phrases that you don’t really understand but that you hope will give off the right mix of knowledge and prudence.
“Buy low, sell high.”
Every time I hear this I think to myself: “Shut up you ignorant newbie.”
Why does this make me so angry? Because they don’t understand the complexity behind what they’re saying. They think that “Buy low, sell high” is a solid piece of responsible, investment advice. A nugget they can repeat at cocktail parties to sound smart, sensible, and in-the-know (it’s right up there with thinking a stock is “cheap” because the price is “low”).
Almost akin to the most important idiom of personal finance, “Spend less than you ear,” which no one can really argue with.
But “buy low, sell high” makes you look like a total douche because only a speculator believes it. If you’re spouting this left and right, then you’re claiming a whole bunch of stuff you probably don’t even understand.
Like market timing. Which, by the way, is impossible for those of you still listening to cassette players and waiting for MC Hammer to put out another great track. Market timing is bull****—it can’t be done by anyone, regardless of how powerful their computers are or how much experience they have in the market.
You cannot time the market, NO ONE CAN. So how do you expect to put your digestible, easy-to-spout phrase into practice?
“Buy low, sell high! Right guys?”
No. Wrong, guys.
When is low? Was it a month ago when the S&P dipped under 1,000?
Or was it a month later when the S&P plummeted even further down?
Same thing goes for the “high.” No one knows when it is, so shut your trap and stick to what you know, which is obviously not investing.
And to those of you starting off in the world of stocks, I give you this little nugget of advice: if you hear someone repeating this over and over again, they are full of crap. Call them out on it. Ask them when the low is and when the high is and how they know.
If they give you a bunch of valuation metrics, then they might actually know something (even if they’re still wrong). If they blabber on and on about investment basics and principles, they have no friggin’ clue.
Ahem.
I don’t want to just rant and rave here with nothing useful or positive to say, so here’s my advice to those who admit they don’t know enough about the market and even you—yes, you—the person who spouts “buy low, sell high” without realizing how angry you make me and how ignorant you make yourself sound.
Learn.
Read The Intelligent Investor. Read One Up on Wall Street. Read Stocks for the Long Run. Devour everything in Morningstar’s Classroom series. Check out About.com’s section on Investing 101. Read Yahoo Finance and MSN Money every day.
Start paper trading stocks to get a feel for what it’s like to watch a stock without risking your money.
Go out there and learn the meat of it, and ignore the fluff. It’ll make you a better investor and it’ll help keep my blood-pressure down…
February 25th, 2009 at 8:10 am
The buy low/sell high phrase, in my opinion, applies to individual stocks more than the market. You are right, you can’t time the market. I can’t tell you if the market is going to go up or down today.
However, I believe the idea is to have an understanding of what you think the value is. If I do my analysis and come up that GE is really worth $28/share, and it is currently trading at $9-10, then I should buy low and sell high.
The fundamental analysis is key here. You have to have an understanding of why you think the stock is under/over priced, rather than random guessing.
February 25th, 2009 at 12:28 pm
I know where you are coming from with the ‘buy low, sell high’ mantra, but I kind of believe in it. Now, we are in absolute agreement that it is impossible to time the market. Likewise, it is impossible to ‘buy’ a given stock at an absolute bottom.
My viewpoint on ‘buy low, sell high’ is that you want to first, do you your due diligence in researching the given stock and then second, deploy a strategy that you want to buy into that stock. I for one never buy stocks on the upswing. I hate being late to the party.
To buy ‘low’, you have to dollar cost average. Make multiple, segmented purchases during a given time frame to take emotion out of the purchase. Similarly, make a plan for an exit point or ‘high’ point.
Yes, you’ll never purchase at the lowest and never sell at the highest. I do think the advice of ‘buy low, sell high’ could set off red flags when not explained in the appropriate context of the given market.
What are your thoughts of a buy and hold strategy? Do you feel that advice could be construed as pure ignorance?
Stupidly Yours,
Matt
February 26th, 2009 at 6:27 am
You both make a good point, and that’s why I included the bit about valuation. If you know your stuff, then yeah, it can come in handy.
But most people don’t know their stuff, and yet they persist in shouting this from the rooftops because they think it sounds correct.
That’s what ticks me off.
As for buy and hold, I have written a couple of posts on it, and in the end I’m a believer in it. But, again, some people would define it as “holding a stock for more than a year,” which clearly is incorrect.
I doubted buy and hold for a little bit there, but in the long run I am for sure in.
February 26th, 2009 at 8:04 am
I agree that you can never time the exact top or the exact bottom, but you can position yourself to take advantage of a top forming and a bottom forming. Anyone foolish enough to just put money in a “diversified” portfolio month after month is only paying for those big houses in the Hamptons, not buying them.
February 26th, 2009 at 1:31 pm
I am probably one of those “ignorant newbie total douche bags”. I guess the one thing I have going for me is that I am not spouting off financial advice to others. I know enough about investing money to be dangerous to my financial stability. I think I understand the point you are trying to make… “Buy low, Sell high”
I’m just going to keep reading your blog and hopefully I will get rich.
February 26th, 2009 at 1:41 pm
What about the case for asset allocation and re-allocating your funds to a set allocation? Let’s say a 60/40 stock/bond split. When the allocation changes to where it’s 70/30 you sell 10% of your stocks and buy 10 bonds to stay within your allocation.
I’ve seen this touted by many as a wise way to buy low and sell high.
February 28th, 2009 at 11:35 am
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February 28th, 2009 at 4:16 pm
@FupDuck, I hope you get rich too and donate a significant portion of your estate to TWC…I’ll keep my fingers crossed for you…
@FFB, I don’t see that as buying low and selling high, I just see that as a responsible maintenance of your asset allocation. Once a year or so. I do it every time I buy more, which is quarterly, only I’m still 100% into stocks, I just balance it out depending on the % I want in each index fund.
July 24th, 2009 at 3:22 pm
You are ranting and raving about how stupid people that say buy low, sell high are (which I agree with) but the rest of your post is just as ignorant and misleading. There are lots of great market timers out there though they are only a small percentage of the population. I’m a market timer and I make money doing just that consistently every week. There are too many people out there that spout this nonsense telling everyone it’s impossible. It just takes dedication and willingness to learn. Stop reading at the morningstar bullshit and investing blogs. Thats the way to stay poor and have to rely on your job for the rest of your life.
July 27th, 2009 at 10:50 pm
I’d love for you to share how market timing can help people build wealth with just “dedication and willingness to learn.” If you’re able to do it, good for you. But this isn’t for the masses. Trust me.
December 24th, 2009 at 5:04 pm
try programming your entry and exits and do some backtesting. when you get around 70% wins over a 10 year perios then apply some position sizing. you will be happy you did.
December 30th, 2009 at 3:42 pm
“Buy Low/Sell High” is not really “advice”, per se, but it is still the fundamental principle of investing.
Can be hard with stocks, but it’s not impossible in all domains. Let’s say I was the GM of a major league baseball team. I’m looking to trade for a starting pitcher at the trade deadline, and I see an 11-year veteran on the market having a career year with a 2.64 ERA.
Meanwhile, this pitcher is 35 years old and has a 4.10 career ERA. Is this a good time to trade for this pitcher?
The answer is no. This would be the quintessential “buy high” move. The upside is almost entirely constrained as the pitcher is performing at near ceiling, and the most likely scenario is downside—the pitcher regresses to his career mean performance.
Not that the pitcher is going to tank, per se (although in this example, the pitcher did. The Tigers “bought” Jarrod Washburn high, and he performed at a 1-3, 7.33 ERA for the remainder of the year). But as the GM/investor, you could have known better.
January 6th, 2010 at 10:18 pm
Pete: love the baseball analogy. Here’s the problem: we know that is a bad trade but GMs make it year after year. Why? Emotions. They have to make a trade to help push the team over the hump. Something, anything.
People do it with stocks all the time too: they have to buy “high” because they “know” it’s going to go up some more and don’t want to get left behind.
It comes back to psychology, which is the biggest hurdle stock investors face when starting out.
March 25th, 2010 at 3:34 pm
I have been investing for quite a while, and I agree it is a ridiculous response. However, you should not get so upset. I have seen this response used many times when dealing with non-investors. You are somewhat mistrusted by people who do not invest at all, and those who do not manage their own portfolio. This response is for dealing with those people. They don’t really want to know what you are doing. They just want to confirm their suspicion that you are either a gambler or a trustfund baby. This is the same for “spend less than you earn.” People really don’t want to know how to save money. They just want you to give them the expected pat response.
April 29th, 2010 at 8:46 pm
I am a broker and buy vehicles at a very low price and sell at a reasonable price…..am i one of those stupid douches. I make a lot of money
July 12th, 2010 at 12:08 pm
buy low sell high is only believed by speculators. Right now that who is making money in the market. If you take buy low sell high to mean buy at the lowest price sell at the highest price you are stupid.
If i buy 1000 shares of a stock to day at $5.00 a share thru a broker that charges 4.95 a side with a trail stop or 7% and the price goes to 6.00 and i sell i gross $1,000.00 and net 9991.10. i bought low and sold high. The fact that the stock may have sold at a lower price the day before i bought it and might have gone even higher the day after i sold it is irrelevant.
as to the intellegent investor: it is full of info like the speculator tries to make a quick profit and will lose in the long run. There is no such thing as a quick profit in the long run. Speculators make quick profits in the short run again and again.
August 26th, 2011 at 5:06 am
you are the only voice of reason among these bunch of idiots. Worse of all the author of the blog, who blows off steam because he cant understand shit.
Buy low, and Sell high. What is so difficult to understand? It is not really possible to buy when the price is lowest, and sell when the price is highest, but definitely, the guys who come close to it are the ones’ making the money.
So buy as low as you can, and sell as high as you can. Just do not panic, and sell low. Or be guided by shit and buy high.
July 26th, 2010 at 7:54 pm
“Buy low sell high” is a basic truth. That is the goal….the holy grail of investing. Anytime ive used the term it was not advise to another. It was a tongue in cheek – over simplified – comment about what we are all trying to do with our investment. Dont over anaylize….except when it comes to your investments.
August 2nd, 2010 at 11:53 pm
Buy low sell high is like playing craps, you get a few wins hitting a 6, 8, 9, 5 then leave all your trades up there and boom 7 out and you wiped out all your chips on the table. Newbies try to call an S & P bottom this past month at 1065, didn’t happen then dropped to 1040, then dropped to 1022 so if you bought at 1065 then still wouldn’t have been the bottom. I only use technical indicators and only get into a position when 3 out of 4 indicators are signaling higher like 1087 on the S&P was the signal to get back in and ride it up to 1160 then back down in the Sept.-Oct.
September 6th, 2010 at 2:28 pm
Buy low…sell high. Short high…cover low. Two best pieces of advice that exists in trading. Of course you could Buy and Hold, but isn’t that really just Buy and Cry?
You may not be able to time overall markets, but if I wanted to trade a market I’d buy an index fund and bury my head in the sand and get the same yearly returns that Cramerica gets.
Probably no reason to read anything at any of the sites you suggest. If they were any good they’d be cleaning up in the market not running a website for ad revenue.
March 22nd, 2011 at 9:25 am
[...] at The Writer’s Coin had a engaging post titled ‘Buy Low, Sell High: You Are Stupid‘. Well, with ‘stupid’ in the title, naturally I had to check it out. Good [...]