Everyone must have heard to "buy low and sell high" before. I learned it from my college finance professor first, then countless times thereafter. But are we misinterpreting it?
What it means (more or less): Buy a stock when it is undervalued. Sell when it is overvalued.
Note that this says nothing about the stock's past price movements, it only makes suggestions based on the current price.
However, many people, as they say they are "buying low and selling high", show great preference for stocks selling at 52 week lows, and great disdain for stocks selling at 52 week highs.
While many stocks at 52 week lows tend to be cheap and many stocks at 52 week highs tend to be expensive, there isn't really causation here. A stock is not inherently cheap because it is at 52 week lows, and a stock is not inherently expensive because it is at 52 week highs. It absolutely is possible to find stocks that are cheap which trade at 52 week highs (and it often is the case)
The fix: Warren Buffet has suggested this before, the main idea is that when analyzing a stock, don't look at the graph. You might start with the financial statements, the annual report, and perhaps even the current valuation. However, the past movement of the stock is not so valuable in determining whether or not a stock is cheap or expensive (obviously this is a very fundamental analysis stance on the topic, technicians will have different opinions)
Submitted March 01, 2017 at 08:54PM by linlaoda http://ift.tt/2lVLKKL
