Stock Market For Dummies - Buy High and Sell Low

Even if you are new to stock market investing, you have most likely heard the phrase "buy low, sell high" sometime in your life. What that means of course, is that it is best to buy a stock when it is at a low price and then sell it at a higher price. That is how you make money in the stock market.

Why then, is the temptation to do the opposite so strong? Why is it so easy to buy high and sell low? Stocks are different from so many other everyday things. When you go to the store, any kind of store, and you see something on sale you immediately are more inclined to buy it. When things go on sale you save money and are thus more inclined to buy. If a dress was $100.00 yeasterday and $80.00 today, it is still the same dress but now you are more apt to buy it.

Stocks and the mentality of stocks seem to work differently. When the stock market is going up as a whole, and individual stocks keep getting more expensive. the tendency is to want to jump in so as to not miss the boat. When any stock XYZ was $50 a month ago, $55 a week ago, and now today at $60.00, investers sort of panic for fear of missing out. Technically, the stock is more expensive today than it was a month ago and yet many people can't wait to buy at the higher price!

Conversely, a stock that is going down is cheaper today than it was a month ago. Yet most stock market investors find it more difficult to buy that stock for fear that it will go down more and they will look silly. They also fear that because the stock is going down that the value of the company is going down. Sometimes that is correct and sometimes it is not.

All I know is that everytime the stock market has gone down significantly, as it has this year in 2008 so far, if I would have pulled the trigger and bought a whole bunch of stocks, I would have made money. Unfortunately I am like most other people and have found that buying stocks in a down market is a very difficult thing to do.

1 comment:

nick said...
This comment has been removed by a blog administrator.