Buy Low, Sell High

It is always investor's mindset to "buy low and sell high" to make money in the stock market. Who doesn't want to do that? You can always say you use fundamental analysis to decide a stock's intrinsic value so you know when is low and when is high. But in reality it is never that simple in investing.

What does it mean by buy low? Investor usually uses 52 weeks high/low as an indicator to tell a particular stock is trading at which level currently. First of all, they will set their investment time horizon to be 6 to 12 months. If the stock is trading at 52 weeks low, they will think that the price now is low which signal a buy call when that is not the case. Usually, when a stock is trading close or below 52 weeks low, it often show weakness in the stock, people are selling that's why it causes the price to keep on dropping. Normally the stock will test its 52 weeks low or even go lower if poor set of financial results come out to make the matter even worse.

If buying low is difficult, selling high is even harder. In a rising market, everybody make money. People who sell later, however, make much more money than people who sell early. Sell too early, you will have the tendency to jump back in to ride on the momentum.You buy back what you sold at a far higher price. Once the bull market ends, you will be caught in a situation whereby you are buying at 52 weeks high.

It is always good to research more on the stock that you are interested to buy currently. Ask yourself these 2 questions before you act on it.

1. What is your investment time horizon for that stock? 
2. Are you looking at the stock for its growth or dividend?

If you are investing for dividend and the current price matches the yield you are interested in. Just buy and keep it for dividend and income. However, if you are investing for growth, it will be more difficult to know how low is low. You have to judge yourself, what is the comfortable price you would enter, should it hit your buy call? Buy in batches. At least you can still buy if the price keep going down after you had bought.

Now for sell, as long as you hit a profit. I guess it does not matter how much you had made. You probably will grumble if you sell too early. However, it is still better when you want to sell, you are not selling it at a loss.