How do you make money in the stock market?
"Buy low and sell high." Everybody knows the answer to this question. It is the knee-jerk response, and it is correct. Sounds easy, right? It is simple, but not easy.
To apply the principle of buying low usually means buying when others are selling, buying when there is bad news, buying when the headlines are telling you to be afraid, buying when the recent track record is not favorable, being the only one in the buying line when the selling line is out the door. Buying low is unpopular and lonely.
Likewise, selling high is not as easy as it sounds. In practice, selling high entails getting rid of your winners, letting go of your best performers, firing your star player - right after he just got a perfect five stars on his most recent performance evaluation, leaving the party when its getting really good. How can you be so cold-hearted as to leave the one that brought you to the dance? Then, you take the proceeds from the sale (betrayal) of your darling, and you dump it into what on the surface appears to be a total dud.
Now imagine doing that with other people's money - while they are watching you. Imagine trying to explain why you got rid of the best-performing stock in the portfolio (aka: selling high), and why you turned around and bought the laggard that has been making headlines for all the wrong reasons (aka: buying low). It is not surprising few managers are able to beat the markets. To do so requires patience, discipline, and the ability to harness your emotions and to think for yourself. It requires the ability to think rationally and to set guidelines, and then to follow the guidelines diligently. Please feel free to call or email us to learn more about how we apply the simple maxim - Buy Low, Sell High.