Stock Market Investors » Stock Market Investing Advices and Tips » Buy Low - Sell High, Buy High - Sell Higher

Buy Low - Sell High, Buy High - Sell Higher

Many investors prefer to pay low for a stock and hope that its price will eventually rise. However, they fail to realize that sometimes it is better to pay a higher price for a stock that has the potentials for a future growth. The money you will save from purchasing a down stock may not justify your investment if the stock continues to languish.

For example, let's assume that stock X has a P/E (price to earnings ratio) equal to 25, whereas stock Y has a P/E equal to 8. If you are ignorant enough and decide to make your investment decision based only on this metric, then stock X will seem as being overpriced.

Let us make another assumption, namely that stock X has experienced this overpricing for several periods of times. On the other hand, stock Y has consistently been under the fair price of the market.

What is more, stock X is experiencing a trading activity that is near the 52-week high, whereas stock Y has experienced a 20% down in its trailing 180-day average.

Typically, investors fail to recognize that the maxim stating that what goes down must come up and the vice versa, doesn't always hold truth. There are many exceptions back in the history.

If you follow this maxim, you will probably conclude that stock X is about to decrease. On the other hand, again under the maxim stated above, an investor may conclude that stock Y is about to make its big jump since its price is low and the stock market will recognize its strengths. Both assumptions may turn out to be completely wrong.

Buy High, Sell Higher

This strategy is highly recommended if you expect that the stock will continue to grow in the future. Thus, you should not be scared off by the high price. A stock that provides a steady percentage of growth is worth paying its higher price today, because if it continues to grow at this rate, its price will be even higher tomorrow.

You should make a careful research before following the Wall Street pack. You may probably regret that you haven't purchased the stock several months ago before its price has not jumped to the sky. However, if you make a careful research and verify that the stock possesses good potentials for future growth, then you should not be discouraged from investing in it.

Keep in mind that the stock's price will rise and fall in the short term, but over the long term a growth stock will move upwards.

Buy Low, Sell High

Many investors prefer to search for bargains, which they can later sell at a higher price. However, if you decide to apply this strategy you should be well aware that the price of the stock may not rise again.

Value investors tend to look for stocks that are overlooked and undervalued by the stock market. However, price is only one of the factors that are part of their selection process. The key consideration made is whether the stock provides steady potential for future growth.

Final Piece of Advice

Avoid making investment decisions based only on the price of the stock because a stock that is down is not obligatory to go up. Additionally, a stock that is up may come down and may not. Look at the other metrics in order to make a more educated and successful decision.

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