‘Buy Low, Sell High’.
Is this the way to success in stock investing?
Commonly, it seems so for that is how we measure capital gains, where if we’ve bought a stock for RM 1 a share and sold it off for RM 2 a share, we made RM 1 or 100% in capital gain from the stock investment. Understandably, this led to a school of thought where market timing is crucial to one’s investment success.
Here, I’ll like to share my thoughts on timing the stock market and why I think it is not the secret sauce to one building a sizable and profitable stock portfolio in the long-term. I’ll end this write-up with what I think is more important when it comes to long-term success in stock investment. So, here we go:
An Ironclad Stock Tip from God?
Let’s say, you are interested in investing in a certain stock where you found that its stock price has been falling for months. Also here, let’s say, I’m God Almighty himself and I reveal to you that this stock will be trading at a price at RM x.xx at a specific time tomorrow and at that point, its price will be the lowest ever. This stock will definitely go up in price after hitting that RM x.xx a share tomorrow.
This revelation is exclusively given to you only and no one else has it.
So, the question is this: Would you believe it? To what extent, you’ll believe in it and act upon it?
If You Say, ‘Yes, I Surely Believe …’
Then, I have my next question for you.
Do you have the money to act upon it tomorrow?
And, let’s say, if you do, here is another question:
If you have RM 100,000 in your bank account now, would you invest all of them into the stock on the following day?
If not, how much would you invest? Is it RM 5,000? RM 10,000? RM 20,000? …
Or, is it RM 50,000? RM 70,000? or what about RM 95,000?
And, please do bear in mind that the local stock market at this point in time is a chaotic one with rising fear and uncertainties. So, how much will you invest?
I believe the amount of money that you’ll invest is a reflection of how confident you are on the stock tip given above. Or, it could also be a reflection of the level of fear and uncertainty you feel about the stock market.
When Will You Like to Sell It?
So, supposedly, you had the money and dumped everything you’ve got into the stock. It means, you’d invested RM 100,000 into the stock exactly at RM x.xx.
The next question is: ‘When will you sell it?’
Is it after the stock has risen by 10%, 20%, 50%, or 100%?
What if God himself gives you another tip, where the stock you’d bought would rise by 100% before its stock price started to drop? And, after the dip, there will be no more tips from God himself as to where the stock price will be heading in the future. It means, after the drop, it could either stay low or rise again.
So, what will you do?
Will you sell the stock for 100% in capital gains and thus, guaranteeing a gain of RM 100,000 from your RM 100,000 investment?
If you say yes, congratulations! You are now RM 100,000 richer and have a total of RM 200,000 in cash in your bank account.
Can You Repeat It Again for the Next Stock Investment?
And, this time, you are to do the investment without tips from God himself.
So, can you repeat this amazing feat?
How frequently are you able to replicate your amazing 100% capital gains? Will it be for the next 10 times, 20 times, or 50 times or for a lifetime with 100% full success without failures?
Will you quit your day job today to focus on the above?
Could you build yourself a career and get rich if you can do the above?
So, What Am I Saying?
To sum it up, here is my thoughts on ‘Buy Low, Sell High’:
- If the stock price has been falling, most people tend to believe it will or could fall further. Nobody is going to guarantee that the stock price is indefinitely the lowest and it could not go lower.
- Even if you believe it is, do you have the money? Will you invest all of it? This will be a test of your affordability and courage. If you don’t have any of the two mentioned, the stock tip is of little use to you.
- If the stock price is rising high, you tend to feel good about the stock and you might even consider buying more as the stock is ‘working’. As there is no say in how high the stock could possibly go, you could base your sale price at the level of greed you possess (how confident you are in the stock market to rise further in the immediate term). Why? This is because nobody is going to guarantee the stock will indefinitely rise continuously forever.
- Even if you did managed to ‘Buy Low, Sell High’, you would most likely not be quitting your day job and practise ‘Buy Low, Sell High’ on a daily basis forever as you may not even have full confidence that you can do this with 100% accuracy without flaws and failures.
- That’s why I think ‘Buy Low, Sell High’ for most people is an attempt to make money from gambling in the stock market. It is speculation and stock decisions are driven by feel and emotions such as fear and greed. This would cause many good stocks to be overly depreciated in times of fear and overly appreciated in times of great confidence or greed.
What is Working for Me in Stock Investment?
Instead of ‘Buy Low, Sell High’, I believe it would be helpful for all to start by not looking at stock prices first before investing into any stocks.
Investing is a long-term activity where investors aim to build sustainable wealth via accumulation of high quality assets that churn out revenues, earnings, cash flows, and dividends to its shareholders for the long-term. It is not really about having a glorious 100% capital gain in one stock but rather a series of replicable investments made to build a pipeline of passive income that you can use to pay bills or to add into your portfolio to expand the pipeline itself.
Rather than investing RM 5,000 in an attempt to make RM 10,000 all the time and risk failing again and again, I prefer adding RM 5,000 at a time to safely build a series of passive income that amounts to 5+% per annum for the long-term. RM 250 in dividends for some is small for a start but it is okay because once you’ve got the hang of it, you could add a lot more than RM 250 in dividends in the future.
So ultimately, here is my message:
Instead of trying to be a stock hero for a moment, how about trying to be more consistent in profiting from your next 10 stock investments via dividends?
To find out more, please click the link: DividendVault.com