If you’ve ever read books on investing, or even attended business school, you’re familiar with the prevailing philosophy of buying companies or markets that are fundamentally sound and avoiding those that are out of favor, or have no prospects for future earnings. Generally, this is sound advice; however, the price we pay for these companies should also be a strong consideration. In other words, we should buy these stocks or markets when they’re cheap, and sell them when they become overpriced. Understanding when they become a value proposition, or too expensive, takes some skill that can only be developed by training and experience.
When I first began my career in the brokerage business in the late eighties, I was very naive about the financial markets. However, I always thought (in my naivet?) that when the market sold off – that was when all those good companies everyone talked about went on sale, and therefore was the best time to buy them. So not knowing any better, I would enthusiastically call as many of my clients (which at that time weren’t many) to purchase those good stocks. I thought that because everyone likes to get a good deal– you know, buy stuff at a discount– that they would be amenable to buying, but much to my surprise, very few people wanted to buy. In fact when the market had suffered through a correction, most people wanted to sell.
Yes, sell at… Continue Reading
