Buying low and selling high is an investment strategy that guarantees success.  But few are capable of doing it.  Most people have an uncanny ability to buy high and sell low.

They’d rather buy Facebook at 80 times earnings than DOW Chemical Company at 13 times earnings.  The simple fact is, where financial markets are concerned, most people couldn’t recognize a good deal if it hit them square in the face.  If something’s selling for 80 percent off its peak price they won’t even consider it.

Of course, you can’t go by price alone.  A certain stock may be beaten down because its business is failing.  What appears to be a bargain price may not be such a good deal after all if shares eventually fall to zero.

Warren Buffett, the world’s most successful investor, noted that “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”  He also clarified “…that a business or stock is [not] an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy.  What’s required is thinking rather than polling.” Continue reading →