In part two of our stock investing strategies, we explore the rational behind the “Buy High and Sell Higher” strategy and discuss how you can make it work for you.
This is in continuation to the previous article where we discuss the impact of buying and holding shares for long periods of time. The article can be found Here. In this article, we discuss another form of strategy, Buy High and Sell Higher.
Can prices of stocks go higher, having already reached a high price? Now, how high is high? As we know, the market is driven by emotions. No matter how much analysis has been done onto a stock, there are bound to be some outliers. There are also stocks that are unable to meet their potential no matter how much emphasis analysts allocate to the stock.
So how long will it take for stocks to be priced at their intrinsic values? No one knows for sure. If that were the case, wouldn’t investors stand a greater chance if they buy a stock on an uptrend? Buying on an uptrend symbolizes that the investor is buying on confidence. When the stock is on an uptrend, the market believes it can only go higher and the probability of the stock going higher is well, HIGH. Let us take a look at some stocks that display this characteristic:
OSIM International (Ticker: O23) is a local company that produces wellness products. It is synonymous with Singaporeans. Who wouldn’t want a message chair that costs well over $5000? Likwise the stock seemed to be doing well since the market have seen it fit to allow the share price to be on an uptrend since the start of the year.
Tripadvisor Inc (Ticker: TRIP) is a website people go to when they want to find out more about their holiday destination. The author likens this company as a monopoly of travel information and the popularity of the website feeds on itself. People contribute information to the website, in turn, they look for information they want. It’s a cycle that continues to grow and when there is an abundance of information, there will definitely be an increase in traffic to the website. Higher traffic equates to higher success rate in converting traffic to revenue. The market seems to believe in this model as well.
JP Morgan Chase (Ticker: JPM) is an investment bank based in the US. The company is doing very well under the management of its CEO. Having gone through the financial crisis, the bank is better capitalized now and as the US economy improves, banks such as JP Morgan Chase are likely to continue doing very well because they are seen as a proxy to the economy. The market agrees.
By buying on confidence, it appears that the investors stand a greater chance. The charts above are 1-year charts; buying in at several time intervals can ensure that investors catch the uptrend and make a decent return. This is not the same as buying in blindly. One has to be certain on his investment decision such as the reason why they are buying in and to consider the upsides and downsides?
In conclusion, investing can never be successful if one is not interested in knowing what happens around the world. The world has reached a point in globalisation where everything is interlinked. This is supportive in the case of Freeport Mcmoran. What has China slowdown got to do with the company? It is only through reading up on news, can one then form a brief investment thesis of what to buy in. Another point in mind is to always protect the downside. This is supportive in the ComfortDelgro case. Protecting the downside prevents one from catching falling knives; we never really know when the stock will stop falling. Always remember to preserve capital so that you are able to recover and come back stronger from a wrong investment.
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