Buy Low, Sell High: It's Important, But It's Sometimes Tough To Do

Buying a stock when its price is low and selling it when the price is high is the strategy that people who invest in the stock market like to perfect, but they do not always succeed. Sometimes people purchase at the high and are reluctant to sell as the stock price goes lower. This leads investors to lose a lot of money. Conversely, people may purchase their stocks when they are low as the price is rising, but not know when to sell. At this time, investors are in danger of losing a lot of money in profit because they are waiting for the stock to reach its highest price. When they fail to predict this point and the stock price begins to fall, they, too, continue to hold onto the stock and, as a result of this action, lose money.

graph jason skepyan People, who do research on a stock before they purchase it, will be less likely to be in either of the positions above. They would have known that this stock that is selling at such a high price may not have been a good investment. A friend of mine who worked at Euronext in Amsterdam told me he always giggled when he heard of people buying without actually researching the company behind the stock. Stock is ownership, and means something!

Investors will know when they are buying a stock at its low after they study the company's true value. The time to buy a stock is when the price is lower than the true value of the company. If this is the case, the stock has the very real potential of going up. After the purchase has been made, investors need to continue tracking the company's true value against the value of the stock. The point at which the stock's value is higher than the company's true value is the point at which the investor's best bet is to sell. When a stock is over-valued, the price is expected to fall.

Another measure to look at is how much money the company is likely to be worth in the present market. It is a number determined by how much money the company will be earning in profit over a specified period of time. This number is called the intrinsic or true worth of the company. The company can begin with a low price on its stock because it is not necessarily expected to earn a great deal more than that in profits. But in the future, anything can happen to cause the stock's price to spike upward. Investors who come across a company that is trading at a low margin but has the potential to increase in true value, is a place to buy low.

A company can also have stocks trading at or above its actual value. At this point it might be a good time to sell the stock, because it is not likely to rise much higher than the point it is at right now. The company's stock can hover around its peak for a while or something negative can happen that will cause the stock's price to fall and drop dramatically. Investors who are looking into the actual value of the company will be in less danger of being caught in the downward spiral, because they would have known that it was time to sell the stock because of factors other than bad news. If investors have purchased the stock when it was trading below actual value and they discover that the stock has risen so much that it is at or above its actual value, then they are in the position to sell high after they bought low.

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