“Buy low and sell high” would be near the top of my list for common misunderstandings about how to win in the markets. Many investors wonder if it’s a mistake to buy a stock at a record high.
Mark Minervini who runs Minervini Private Access, among many others, points out in his legendary book How to Trade like a Stock Market Wizard, that “super-performing” stocks must by their nature make many record highs on the path towards 10X or even 100X gains.
Link to buy the book on Amazon
Of course, you look like a genius buying a stock that’s been cut in half if it recoups those losses. The ultimate ‘bargain hunter!’
This kind of thing can and does happen. But how often?
As I have come to understand this age-old market idiom:
- “Low” doesn’t mean low relative to historic price levels. It means low relative to what the stock could be worth in the future.
- “High” does not mean a former high point. It means “high” versus investor expectations.
By this definition of “buy low and sell high” you can just as easily buy a stock at a record high and selling it much higher,
Check out Minervini’s example of Yahoo.
Can one reasonably look back and say buying after a 170% rally at an all time high was not “low” relative to where the stock ended up, 4300% later?
An important caveat: You don’t buy slow-growing or value stocks at record highs. But for growth stocks, you could easily make the case that that’s the best time to do so – because you never know for sure how far it can keep going.
