Buy Low Sell High is Dead
This post concludes one year of trading. Okay, I have been busy working on a textbook (under contract with a major publisher) so I haven’t really been all that active. But then again, that is part of the one-year experiment. Who really has time to actively trade stocks after all?
I ended up cashing out my Ligand Pharmaceutical (LGND) stock this morning. I had 15 shares sold at $95.40. My one-year totals:
Starting Investment: $1,000
Ending Cash Balance:
Actual Annual Return: 43.37%
Trading Fees ($10 per trade): $120
Annual Return excluding fees: 55.37%
Of course LGND is currently at $
99.13 98.17 as we speak so yes, I left some money on the table. But that finally brings me to the point of the post. Buy Low and Sell High is BAD advice. Why? It’s not like you want to buy high and sell low.
Trying to buy low and sell high is a dangerous game.
Many people believe that if a stock is falling then it must soon be on its way up soon. But a lot of times that is just not true… especially if you are an active trader. Perhaps investing in the long-term that will make sense, but maybe not. Sometimes the stock is falling because it is a bad business model and it cannot be sustained. Maybe it will bottom out and collapse or hover near those lows for many years to come. A falling stock price indicates that the market has lost confidence in that stock. Nothing says they will ever regain that confidence.
So what advice do I recommend?
Buy High and Sell Higher
When you are actively trading it is less about what you think the company will do and more about what you think other investors, especially the major investors, think the company will do and how they will react to it. They drive prices up and down.
I will continue to share more of what I learned and keep you posted as I make any new investments. I will do a better job of posting each time I make a trade so you can follow along if you want.