Buy Low, Sell High – A Hard Concept to Follow

by Stacy Francis, CFP®, CDFA

A friend of mine called the other day to tell me about this “miracle fund” she’d been watching. Despite the markets, it had climbed almost 40% over the past five months. I have to have this fund, she said. Could I get her some?

Well, I told her, the thing is, few funds beat the market averages in the long run. If this fund has climbed 40% in a matter of months, chances are, it is more than a little overpriced.

Most investors know that in theory, investing is all about buying low and selling high. Yet very few can put this into practice. Few people are brave enough to buy a stock or a fund that’s been falling off lately, even when their financial advisors assure them that the fundamentals look good and the outlook prosperous. When, on the other hand, stocks or funds have been raging lately and are halfway to the moon, everyone wants to buy.

It is not hard to see why. You have worked hard for your money, and you depend on it. Your life would be over if you lost it. The problem is, by buying securities that are up and selling them when they are down, you are doing just that. You are practicing the opposite of clever money management.

Sure, both stocks and funds can fall because the companies are plain bad. There may be a real reason people do not wish to own them. On the other hand, weaknesses in the markets can present extraordinary opportunities to buy. The key is to work with an expert who can tell the difference.

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