Safely Prosperous or Really Rich: Choosing Your Personal Financial Heaven

Chapter 10

The Financial Death Wish

Buying high and selling low is like a universal plague—most everyone does it. Here are the surprising reasons why you do it, and how to stop.

I doubt that anyone will consider “buy low, sell high” to be a brilliantly controversial idea. It's self-evident, isn't it? Who would do otherwise? Most investors, that's who, because most stock market investors lose money in the markets, even in bull markets. It's an almost universal phenomenon. Most investors have done it at least some of the time. What they don't know is why they did such a dumb thing. There are several definable and avoidable reasons:

• Ignorant timing: Investors usually have no clue as to real intrinsic value, so they do the stupid thing described in Chapter 8—they pay too much for an overvalued stock because it's “hot” or in the news (which means the pros have already bought), and then when it inevitably returns to a more realistic valuation, they get discouraged and sell out for less than what they paid for it, so they bought high and sold low. They don't realize that profit is predetermined at the time you buy, much more than when you sell. If you don't buy right, the odds are you will sell low.
• Emotions: Emotions are usually a huge factor in stock losses. Investors who make unemotional decisions are rare (if they do, they're usually hardened professionals), and the emotions that can distort judgment are legion: enthusiasm, the desire to not be left out (otherwise known as herd ...