Almost every stock ‘guru’ worth his salt says “Buy low, sell high”. Seems to be a rather simple concept, doesn’t it? I used to be very impressed with emails saying “Our recommendation – stock xyz at Rs.20 and now after only 2 years it is 435!” I did invest on their recommendations, but somehow things didn’t click for me.
Then came several friends who, over lunch or a couple of beers, would say “I bought ABC Stock at its lowest and in 6 months sold it all at the highest price – it has never touched that level again!” – very, very impressive. Not one stock, but almost always! Made me feel rather stupid.
Then I started listening to their recommendations and tracking it on the market – saw the stocks going up 2 – 3% every day and after a week or so convinced myself that this was it. Let me try it for the short term. Then, almost always, a strange thing happened – almost to the very minute I got off the phone with my stock broker giving him the order to buy a substantial number of that stock, the stock discovered ‘gravity’. It was so joyous on this discovery that it embraced it tightly and did not let go of the embrace till it had lost at least 25% of its value or even more!
Okay, never mind – it is a good stock, no problem, I’d think and instead of the short term, I’ll hold it for the long term. After a couple of years, when it had still not come back to my original buying price, I would quietly convert it from a ‘long term’ buy to a ‘lifetime’ buy. I have an impressive portfolio of ‘lifetime’ investments!
The problem with ‘buy low and sell high’ is that nobody – not even the stock guru, knows what price can be termed as ‘low’ and what can be termed as ‘high’. Notice, all their claims are in the past. They are like the Indian Weather Bureau – fed up of all the criticisms of wrong predictions, they had decided to only announce yesterday’s weather!
What has the above to do with ‘Asset Allocation’? Will go into it next week.
The main purpose of the stock market is to make fools of as many men as possible – Bernard Baruch
Niranjan Bangera
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