Buy Low, Sell High

genchan · #1 (**permalink**) 07-23-2006, 11:01 AM

How realistic is this investment strategy? Are there really tools that can help you know when a stock is low and when it is high?

Broken Arrow · #2 (**permalink**) 07-23-2006, 05:18 PM

Is "But Low, Sell High" really a good advice?

You know what? That's a very good question! I think it's good in concept, but not in execution.

For example, some may intrepret that as a justification for the validity of speculating through market timing. Unfortunately, I don't think that's a good way to go.

A better way to go would be to do what Warren Buffet does, which is to find little known, undervalued, but solid companies that are currently low, then buy and hold until as they grow and mature.

"Buy and hold" with a focus on long-term growth is really the way to go. "Buy low, Sell high" implies short-term climbs (or the attempt at it) through speculations and market timing.

Unfortunately, I don't know any magic tools that can help either way. Were it up to me, I'd be tempted to just contribute to index funds, and leave it at that. That or I hope you like reading prospectuses.

greedy4chips · #3 (**permalink**) 08-11-2006, 09:55 PM

I used to swing trade stocks back when the dot com boom was in full run. I made $63000/yr for 2+ years while working 60 hrs per week at my real job driving truck at night for an LTL company.

My method was to follow several stocks on an instant quote system for what I called "fishing". "Fishing" if you can invision an ice fisherman staring at the hole in the ice waiting for a fish to take his bait. When the fish hits you need to set the hook right away or else they will spit out the hook.

I won't mention the stocks I followed, but I can gurantee you heard of most of them. If a stock is currently trading at $22 per share I would have several screens open with my limit order typed into the browser waiting for that fish to bite. A fish bites when the stock price drops from $22 to $20 1/2 to $21 within a minute and would bottom out for no more than a few seconds and then start to recover quickly back to $22. This happened for me once per week max for all 6 stocks I watched. Those 6 were the only ones I could find that type of move on a tick by tick chart of trades.

I could only explain the drop in price to a blocktrade. A blocktrade is when an investment firm or person chooses to buy or sell a very large amount of stock quickly. Unlike a typical trade which occurs at the current bid/ask prices a blocktrade occurs below the current price if the block of shares is sold and above the current price if the shares are a purchase.

Firm ABC wants to sell 500,000 of XYZ when the current price is at $22/ share. Traders agree to purchase the shares from ABC for a lower price since they are accepting the risk that they may not be able to sell the shares for a profit. The price that is agreed to is based on many factors but includes current price vs recent price and liquidity. Both parties assume some risk in the transactions, ABC could make more if they held the shares and slowly sold them into the market so as not to drive the market down. The traders assume the risk of not being able to sell the shares for a profit and for this risk they require a premium price to make the transaction.

Just reverse the process if ABC wants to buy XYZ shares.

That was my buy low sell high scheme. I don't even ask for payment. None would ever be collected anyhow.

Why did I quit if I was doing so well? In my last 6 months of trading I made $83,000 and have proof in the form of transaction reports. My problem was I had a 60 hr per week job paying me $68,000 per yr which was killing me since I rarely slept more than 3 hrs per day. Now add an unbelievable wife who put up with an absentee husband for 2 years (since I slept almost the whole weekend or else I was a zombie when we did do something). We also had our first child and the first 6 months of her life she spent seeing me at the computer.

Ok yes the market crash was also a huge factor, but only because my style changed to a buy and hold method while I decided I would become a husband and a human and actually get 7-8 hrs of sleep per day. Meanwhile the stocks I owned on margin slowly fell to the point I couldn't bare to sell and truly believed they would have come back. Unfortunately they didn't before margin calls sucked the life out of my acct. Not to mention the taxes on $132,000 profit wiped out the rest of my acct balance.

I had the time of my life doing it, but its not for anyone who needs an income or a life. At least my method wasn't. I buy and hold now and actually have my sanity and hair back. It isn't glamorous or captivating to tell anyone you buy and hold but honestly most daytraders/traders are only fooling themselves into thinking they are ahead of the game!

How many times can you buy and sell a stock when it moves from $22 to $30 in a year and still make $8 per share total? Almost never! Even if you did what did you honestly gain if you had bought and held for the year and had a real job with benefits, companionship of coworkers, and low blood pressure? Bills need to be paid, and forcing trades to pay bills and taxes kills the sanity.

Worst trade? $7000 loss in 24 hrs!

Best trade? $9000 profit in 3 days! One trade for $750 in less than 30 seconds when a person entered a bad purchase price in the aftermarket trading session. Story goes like this...

It was a friday and stocks began to trade on the aftermarket trading system, after the market closes at 4 pm est and a stock I watch is at $21 bid - $22 1/8 ask. My instant quote system sees a bid of $22 for 1000 shares appear. I immediately type in a short sell at $22 for 1000 shares and sell to this mistyped bid (I assume since the stock closed at $21 1/4). I then put in a buy at $21 1/4 for 1000 share (to cover the short sale) and instantly it buys. All this happened in 30 secs...no BS either. $750 - 2 $9.99 trades. We went to Applebees that night with friends (planned ahead of time).

I had 6 more bad trades but those happened over the course of months when the market fell in the dotcom bust!

I wouldn't change a thing even though the $132,000 is long gone!!!!

Broken Arrow · #4 (**permalink**) 08-12-2006, 04:48 AM

Wow. Thanks for sharing!

mariec99 · #5 (**permalink**) 08-12-2006, 09:56 AM

Quote:

How realistic is this investment strategy? Are there really tools that can help you know when a stock is low and when it is high?

Trying to time the market is a losing game. I was a securities trader for 7 years. I watched many, many investors who tried to use this strategy lose money.

Buy good stocks and hold them. That's how wealth is built.

sweeps · #6 (**permalink**) 08-14-2006, 07:42 AM

Quote:

Originally Posted by mariec99

Trying to time the market is a losing game. I was a securities trader for 7 years. I watched many, many investors who tried to use this strategy lose money.

Agreed. Unfortunately you never hear about them. You only hear about (or from) the minority of people who made it big. Kinda like the late-night real estate infomercials... "I went from being a janitor to a $500,000-a-month real estate tycoon! You can too!"

cptacek · #7 (**permalink**) 08-16-2006, 03:27 PM

Read "The Intelligent Investor" I just posted about it on another thread. I LOVE THIS BOOK. I'm going to reread it until it is so worn out that I have to buy another one so I can reread it again. Benjamin Graham is the author, and he TAUGHT Warren Buffet how to make money by buying parts of companies (stocks) that are undervalued on the stock market vs. the real market value of the company when taking into consideration profits, earnings, dividends, tangible assets, debt, etc. It is very technical, very well written, but hard to understand at first.

according to Benjamin Graham and Warren Buffett, what greedy4chips was doing is speculating, not investing. I think even greedy4chips would agree with that.