buy HIGH and sell LOW?

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sambb
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buy HIGH and sell LOW?

Post by sambb » Mon Dec 24, 2018 8:56 pm

Im confused by threads that have popped up, that state that people want to sell now that the market has gone down. Isnt the point of investing that one buys low and sells high? If we are down 20% isnt it a better time to buy than 2 months ago, since you get more for your money? I suppose it depends on time horizon, but i see a lot of doubt here, and is there something im missing in these threads. I would love to learn more if something is different this time around?

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arcticpineapplecorp.
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Re: buy HIGH an sell LOW?

Post by arcticpineapplecorp. » Mon Dec 24, 2018 9:10 pm

you are generally correct. Sometimes people are new and asking questions because they don't know much about investing, don't know what to do and/or have never experienced a bear market. Others may have not correctly estimated their risk tolerance and they're having an ICSIA (I Can't Stand It Anymore) moment. People overestimate their risk tolerance during bull markets or suffer from overconfidence. There are many cognitive types of errors that lead investors astray. Learning about them can lessen errors, but you've still got to understand and be vigilant of them.

There are many threads from 2008-2009 that show the panic, fear, throwing in the towel, etc. Sometimes even bogleheads can be a contrarian indicator (this has been mentioned/questioned before). When all the posts seem to ask "Why not be 100% in stocks?" we are probably headed for a pullback at somepoint. Then when there's maximum pessimism that generally indicates a good time to buy. Those that understand this will profit over time. Those that do not, will buy high and sell low as you suggest.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

amitb00
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Re: buy HIGH an sell LOW?

Post by amitb00 » Mon Dec 24, 2018 9:15 pm

Logic of selling now is that folks believe more downside is coming. So if they bought at $100 and it is now at $80. They think it is better to sell at $80 and then buy it back at a lower price say $60. This saves them from additional loss.

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arcticpineapplecorp.
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Re: buy HIGH an sell LOW?

Post by arcticpineapplecorp. » Mon Dec 24, 2018 9:25 pm

amitb00 wrote:
Mon Dec 24, 2018 9:15 pm
Logic of selling now is that folks believe more downside is coming. So if they bought at $100 and it is now at $80. They think it is better to sell at $80 and then buy it back at a lower price say $60. This saves them from additional loss.
This may be true, however the problems with this line of thinking are:

First they created a 20% loss by selling at 20% below their purchase price

Second, they might want to buy back in at $60 but it never falls that low. Say it only falls to $70 then starts to go back up on the way to $100. They are waiting for it to fall to $60 and it never does. Now what? When do they buy back in? $80? They've still created a 20% loss for themselves.

Third, they could buy back in at $60 and watch that fall further. Then what?

What if they instead didn't sell the $100 at $80 but instead merely buy new shares at $80 and watch all the shares return to $100 or higher? Then there wouldn't be ANY losses; their original $100 would be back to that and they'd have only gains (on the new shares bought at $80 or whatever lower price).
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Nate79
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Re: buy HIGH an sell LOW?

Post by Nate79 » Mon Dec 24, 2018 9:30 pm

Depends on what you are referring to.
There are new threads from posters who are seeing a decent drop for the first time and are finding they cant stomach the losses. The market may drop a lot more and they want to sell.

There are also many threads on tax loss harvesting which is selling for a loss but immediately buying a similar fund.

So depends on what you are talking about.

delamer
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Re: buy HIGH an sell LOW?

Post by delamer » Mon Dec 24, 2018 9:46 pm

People are reacting out of fear and ignorance. Right now, they want to sell because of fear.

They bought stocks when they were higher priced out of hope (and ignorance).

This forum can reduce people’s ignorance and help them manage their emotions — both the hope and the fear — if they are willing to study and learn.

But only not everyone is willing to make that effort.

A wise person on this forum said (paraphrasing): You can’t get the risk premium without taking the risk.

It isn’t until there is a downturn that people really understand the implications of risk.

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willthrill81
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Re: buy HIGH an sell LOW?

Post by willthrill81 » Mon Dec 24, 2018 9:49 pm

arcticpineapplecorp. wrote:
Mon Dec 24, 2018 9:25 pm
amitb00 wrote:
Mon Dec 24, 2018 9:15 pm
Logic of selling now is that folks believe more downside is coming. So if they bought at $100 and it is now at $80. They think it is better to sell at $80 and then buy it back at a lower price say $60. This saves them from additional loss.
This may be true, however the problems with this line of thinking are:

First they created a 20% loss by selling at 20% below their purchase price
They didn't create the loss. They simply realized it. But even if they didn't sell, the loss is real.
arcticpineapplecorp. wrote:
Mon Dec 24, 2018 9:25 pm
Second, they might want to buy back in at $60 but it never falls that low. Say it only falls to $70 then starts to go back up on the way to $100. They are waiting for it to fall to $60 and it never does. Now what? When do they buy back in? $80? They've still created a 20% loss for themselves.
That's the biggest problem. It isn't really the selling, it's failing to buy back in.
arcticpineapplecorp. wrote:
Mon Dec 24, 2018 9:25 pm
Third, they could buy back in at $60 and watch that fall further. Then what?
They'd still be better off selling at $80 and buying back in at $60 than having just rode the price down from $80. But the behavioral issues (i.e. panic selling if the price continues to drop) are a potentially big problem here.
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Scooter57
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Re: buy HIGH an sell LOW?

Post by Scooter57 » Mon Dec 24, 2018 9:57 pm

There are also people who have seen dramatic rises in the value of their portfolios since 2009 who are thinking about preserving the bulk of those gains in the face of a whole confluence of negative factors coming together at once that are making them appreciate what they have.

For retirees who have enough but got lulled into complacency by a decade of stable low volatility the past couple months have brought back a lot of memories.

If you bought in 2012 you are selling high right now.

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Phineas J. Whoopee
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Re: buy HIGH and sell LOW?

Post by Phineas J. Whoopee » Tue Dec 25, 2018 1:53 pm

We can never tell, at the moment, what is high or low. It only becomes clear years later.

My investing and financial plan, which I wrote for myself over a long period of time, does not say to sell stocks under conditions like we're experiencing now. Some people have plans different than mine. Some people have plans they're not committed to. Some people reach reasonable conclusions about what they need to do today under present circumstances, just as people do in all situations always.

Isn't there something about those who live in straw houses shouldn't stow thrones? :wink:

PJW

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sambb
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Re: buy HIGH and sell LOW?

Post by sambb » Tue Dec 25, 2018 2:27 pm

people who are nervous and selling may be right, but those with a long time horizon are probably going to be rewarded by staying put
This is why most beginners shoudl start with a 60/40 allocation for a few years, not listen to people who advise 80/20 before they are comfortable.

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ResearchMed
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Re: buy HIGH and sell LOW?

Post by ResearchMed » Tue Dec 25, 2018 5:15 pm

sambb wrote:
Mon Dec 24, 2018 8:56 pm
Im confused by threads that have popped up, that state that people want to sell now that the market has gone down. Isnt the point of investing that one buys low and sells high? If we are down 20% isnt it a better time to buy than 2 months ago, since you get more for your money? I suppose it depends on time horizon, but i see a lot of doubt here, and is there something im missing in these threads. I would love to learn more if something is different this time around?
For one reason to do this, you should read a bit about Tax Loss Harvesting (TLH).

It can allow some immediate savings on taxes (now, and also in future years, depending upon how much of a loss).

When this is done, one typically re-purchases immediately something that is similar but NOT identical, so that one gets the tax deduction, but stays pretty much the same in the market.
(Note that the substitute purchase cannot be identical or substantially the same. And there are timing rules, including, such that automatic dividend/etc., "reinvestment" may negate the tax loss, so some care is needed.)

There are other reasons, as mentioned above.

RM
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sambb
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Re: buy HIGH and sell LOW?

Post by sambb » Tue Dec 25, 2018 6:05 pm

im not referring to the TLH threads, thats a whoel different topic
Im talking about people that say they bought in, and are now thinking of getting out due to ongoing losses

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nisiprius
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Re: buy HIGH and sell LOW?

Post by nisiprius » Tue Dec 25, 2018 7:27 pm

"Buy low, sell high" is just a meaningless slogan. At best, it expresses a desired outcome, not an actionable strategy for achieving that slogan.

There are dozens of such sayings and you can trot out one for whatever you want to do. Or, if you are a broker trying to convince a client to make a transaction, you can trot one out for whatever you want the client to do.

It's gone up and you want to buy? "The trend is your friend." "You're playing with house money now."
It's gone up and you want to sell? "Buy low, sell high." "Nobody ever went broke taking a profit."
It's gone down and you want to buy? "Buy low, sell high." "It's on sale."
It's gone down and you want to sell?" "Cut your losses and let your profits run." "Don't catch a falling knife."

What does "buy low, sell high" mean as an actionable strategy? If I buy at $50 and the next day it's at $50.01, should I sell? Surely not. So, "buy low, sell high" is not a completely stated, actionable strategy.

I know people who lost virtually their entire retirement savings at the company I was working at, because they did not want to "sell low." At that time the company's only retirement plan consisted of grants of company stock, which had been $40 a year a few years before I joined. When I joined, it was already down to $14/share, but people did not want to "sell low," so they hung on. They hung on as it declined, over a period of about three years, to $8 and $4... and then eventually went the company went bankrupt. I can't swear they literally lost everything--I'd been let go and wasn't following--but the company reorganized, they got shares in the reorganized company, which then went bankrupt again. Whatever they had, it was pennies on the dollar compared to what they had had ten years earlier.
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Stormbringer
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Re: buy HIGH and sell LOW?

Post by Stormbringer » Tue Dec 25, 2018 8:20 pm

nisiprius wrote:
Tue Dec 25, 2018 7:27 pm
What does "buy low, sell high" mean as an actionable strategy?
I guess I would consider re-balancing as the actionable strategy. Sell the asset class that has moved above the target allocation, and buy the asset class that has fallen below the target allocation.

Although that's probably not what most people are thinking when they say that.
"Compound interest is the most powerful force in the universe." - Albert Einstein

maxDrawdown
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Re: buy HIGH an sell LOW?

Post by maxDrawdown » Tue Dec 25, 2018 8:51 pm

arcticpineapplecorp. wrote:
Mon Dec 24, 2018 9:25 pm
Second, they might want to buy back in at $60 but it never falls that low. Say it only falls to $70 then starts to go back up on the way to $100. They are waiting for it to fall to $60 and it never does. Now what? When do they buy back in? $80? They've still created a 20% loss for themselves.
That's actually the beautiful part about a momentum (absolute momentum, in this case) strategy: It doesn't dwell on mistakes indefinitely. If 12-month momentum (or whatever measure is being employed) becomes positive again, you buy back in, possibly a bit higher than $80. This is the "tax" you pay for having avoided a potential further drop from $80 to $40.

(Don't get me wrong; I'm still quite undecided about whether such a strategy is better than just holding.)
arcticpineapplecorp. wrote:
Mon Dec 24, 2018 9:25 pm
First they created a 20% loss by selling at 20% below their purchase price

[...]

Third, they could buy back in at $60 and watch that fall further. Then what?
I was about to answer the same as willthrill81 did :happy The loss happened when it dropped 20%. "Unrealized gain/loss" is such a misleading term IMHO.

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Re: buy HIGH and sell LOW?

Post by AlphaLess » Wed Dec 26, 2018 2:42 am

sambb wrote:
Mon Dec 24, 2018 8:56 pm
Im confused by threads that have popped up, that state that people want to sell now that the market has gone down. Isnt the point of investing that one buys low and sells high? If we are down 20% isnt it a better time to buy than 2 months ago, since you get more for your money? I suppose it depends on time horizon, but i see a lot of doubt here, and is there something im missing in these threads. I would love to learn more if something is different this time around?
Substantial amount of the 'information' here is noise.

I would recommend picking and choosing very carefully what you believe in an internet forum.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.

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Re: buy HIGH and sell LOW?

Post by The Wizard » Wed Dec 26, 2018 5:24 am

sambb wrote:
Tue Dec 25, 2018 6:05 pm
im not referring to the TLH threads, thats a whoel different topic
Im talking about people that say they bought in, and are now thinking of getting out due to ongoing losses
I haven't actually seen that many threads on that topic here in past weeks.
I'll try looking harder...
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The Wizard
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Re: buy HIGH and sell LOW?

Post by The Wizard » Wed Dec 26, 2018 5:35 am

nisiprius wrote:
Tue Dec 25, 2018 7:27 pm

...I know people who lost virtually their entire retirement savings at the company I was working at, because they did not want to "sell low." At that time the company's only retirement plan consisted of grants of company stock, which had been $40 a year a few years before I joined. When I joined, it was already down to $14/share, but people did not want to "sell low," so they hung on. They hung on as it declined, over a period of about three years, to $8 and $4... and then eventually went the company went bankrupt. I can't swear they literally lost everything--I'd been let go and wasn't following--but the company reorganized, they got shares in the reorganized company, which then went bankrupt again. Whatever they had, it was pennies on the dollar compared to what they had had ten years earlier.
Let's not conflate Specific Company Risk with broad based investing.
It should be safe to assume that the S&P 500 index will *never* go bankrupt...
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FireProof
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Re: buy HIGH and sell LOW?

Post by FireProof » Wed Dec 26, 2018 6:06 am

There's no test for joining the forums - it's filled with irrational, ignorant investors, just like everywhere else, although the percentage is a bit lower.

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hdas
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Re: buy HIGH an sell LOW?

Post by hdas » Wed Dec 26, 2018 7:44 am

arcticpineapplecorp. wrote:
Mon Dec 24, 2018 9:10 pm
Sometimes even bogleheads can be a contrarian indicator (this has been mentioned/questioned before). When all the posts seem to ask "Why not be 100% in stocks?" we are probably headed for a pullback at somepoint. Then when there's maximum pessimism that generally indicates a good time to buy.
I would say MOST of the time. Incredibly useful
This can be quantified
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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