Did you buy low and sell high?

Did you buy low and sell high?

If you ask me this question or for that matter any other investor, they would say that all I try to do is buy low and sell high. It’s was necessary for some folks to sell securities at whatever rate they can get coz it was an emergency but blog is for all the other folks who sold their securities out of fear.

Looking back at 2007 highs

Buy Low and Sell High has not always what we do. Especially during the 2007’s earnings season when companies were reporting out of the roof positive earning surprises and at the same time you must have overheard folks discussing their stock market paper profits at lunch, gym and during other water cooler conversations. Such conversation was dreadful especially if you had not invested money other than your 410K into the stocks or mutual funds. I bet you went online to check your bank balance and also had a chat with your honey about that money which needs to be moved to the brokerage account. Yes, we have all done that some point in time. We did it due to the human tendency of fear of being left on the sidelines while people board the train. Looking at the stock market after a few months or years (if you were long on those positions), your investment doesn’t look that rosy does it? The reason for the super rally in the stock market was surely an “irrational exuberance” or super optimism but the recession/ depression we are in right now may well be coined as irrational pessimism. We as humans will do any certain act only to avoid pain or gain pleasure. So most of us buy stocks at high prices or during a rally coz we don’t want to be left behind when others/market makes progress. On similar lines we sell stock when newspapers, TV channels and other media are portraying super pessimism about the stock market. This is when we decide enough is enough and we refuse can’t take any more potential losses. We just went through a naïve investor’s mindset of buying high and selling low even when we know that the right thing to do is buy low and sell high.

Have you adjusted your 401k contributions lately?

I know some many people who changed their 401k allocations from high in stocks to low in stocks during Nov 2008 to April 2009 window. Guys..let me remind you that stocks market is cyclic with the only difference in each of the recession and the following rise being the cycle time. If stocks in your 401k fall by a huge percentage and you end up changing the allocation to something less risky then necessarily you have booked those losses and delayed the recovery of your 401k by several years (read my DCA blog) I can say this confidently because risk and return go hand in hand. There is no way in the world that you can recover the paper loses you took in your riskier allocation and come back up in green using the allocation which is less risky than the one you were previous in. Moreover if you changed your allocation at or close to the bottom of the stock market means that you took the biggest possible loses and having done that you have surrendered to the fact that your 401k’s recovery won’t be at a dramatic rate as its decline. My heart goes out to the older folks close to retirement who lost tremendous amount of money in their retirement account. I am confident that recovery is imminent, but chances that these older folks would be able to make full use of the recovery are slim. I hope some of these folks would have changed there allocations to bonds or other fixed income sources when market was at the peak.

What did I do?

I will admit that I was devastated by more than 50 % loses on some of my holdings and took loses last year as I Sold Low the securities I had bought High previously. But I invested (speculated) the same money back in some of the securities which had lost about 80 to 90% of their value as compared to their 52 week high. That is surely risky because their prices were beat up for a reason but you have to realize that these are the very securities which will and have bounced back up from their 52 week lows. So I moved my money to more risky positions with an anticipation of recovery. I take pride in the fact that I am back in green (marginally) after considerable amount of effort, research and gut checking. I am confident that it’s going to be a huge upside form here on forward.

The logic is simple here…even JT (Justin Timberlake) knows it … “That's okay baby 'cause in time you will find...What goes around, goes around Comes all the way back around”

Here is a link to an interesting article on similar lines at…

http://www.filife.com/stories/investors-lament-buy-high-sell-low