I’m sure most people are familiar with the phrase “buy low, sell high” when it comes to stocks.
This term is associated with buying so-called “value stocks”, which Investopedia defines as “securit(ies) trading at a lower price than what the company’s performance may otherwise indicate”.
However, the digital age has made a mockery of this tried-and-true saying. It is now “buy high and sell higher”.
America Online, way back in the day, set the table for this new approach. I remember watching AOL in the mid 90s trade at valuations that made it very difficult to buy using traditional metrics. I’d be convinced that I’d missed the move, only to watch the stock double, and then double again.
Then along came Amazon (NASDAQ: AMZN) that completely broke the mode of traditional valuations, and became a short seller’s nightmare! I know, because we traded Amazon when it went public, and proceeded to lose money on a daily basis as the stock went from $15 to $400 in a few months. It eventually sold off when we had the dot com bubble, but it took no prisoners prior to that.
When a company has an opportunity in the trillions of dollars, you have to throw traditional valuations out the window. Look at a stock like Berkshire Hathaway (NYSE: BRK.A). Stewart Horejsi, an average retail investor who owned a welding company, started buying the stock in 1980 when it was between $300 and $500 a share. Today the stock trades for over $300,000 a share – and Mr. Horejsi is #1339 on Forbes magazine’s billionaires list.
Don’t be afraid to buy high and sell higher!
My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.
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