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How to Really Buy Low and Sell High
Tue, 27 Sep Pre-Open

We all know that the key to investing riches is to 'buy low, sell high'. But is it as simple as it sounds?

Here is a question for you: Do you care more about a company's 52-week highs and lows than its valuations and business prospects? Do you use 52-week statistics as buy and sell signals? If so, you are among the majority. And most likely, on the wrong side.

Let me give you an example. When we recommended Astral Polytechnik in Hidden Treasure a few years back, it was trading close to its 52-week high. Some of our subscribers were worried about the high recommendation price and even wondered if we had made a mistake.

Well, the stock has been a multibagger. In fact, the recommendation price - the then 52-week high - is the lowest the stock has traded since the recommendation.

Successful long-term investing isn't determined by 52-week highs and lows. Yet, this data is among the most researched by investors. What's worse, investors use 52-week reference points to make investment decisions. They are confusing this strategy with value investing.

A stock at a 52-week low is not necessarily cheap or undervalued.

And a stock at a 52-week high is not necessarily expensive. Investors often react irrationally to stocks at 52-week highs and lows because of anchoring bias.

The market price does not determine if a stock is cheap or expensive.

But then, how should one differentiate real bargains from value traps?

The good news is that there is an investing strategy that does exactly that. It is a strategy that has a proven track record. After all, it was devised by Benjamin Graham, the father of value investing.

We came across it about three years back and were struck by its simplicity and profundity.

What's more, it presented a coherent investment strategy that investors can implement right away.

As per Graham, an investor needs to keep in mind only three rules to create a diversified market- beating portfolio:

  • Buy stocks based on certain objective parameters such as its current earnings or book value and don't worry at all about future book value or earnings. The company must have a strong balance sheet.
  • Sell stocks as soon as they go up between 50-100% or in two years, whichever is earlier.
  • Keep a minimum of 25% of the portfolio in both stocks and bonds at all times. When markets are expensive, go as low as 25% in stocks and as high as 75% in bonds. When markets are cheap, do the opposite.

You'd be hard-pressed to come up with a formula that's as simple and effective as this.

Our premium recommendation service Microcap Millionaires has demonstrated the formula's effectiveness. We launched the service based on these three rules, and it's currently outperforming the benchmark index by a big margin. Returns currently stand at 105% as opposed to the Sensex's 39%.

We recently published a Microcap Millionaires special report with full details on our Top 6 Microcaps for 2016. Yes, six microcaps that meet Ben Graham's stringent investing criteria. If you haven't tried Microcap Millionaires yet, HYPERLINK "https://orders.equitymaster.com/mcm-24950-sep16-paid/E860SA61" \t "_blank"click here for a personal invitation.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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1 Responses to "How to Really Buy Low and Sell High"

Amit

Sep 27, 2016

I can't understand why returns from Microcap Millionaires are compared with Sensex returns? Isn't this a predominantly Midcap/Smallcap service? I would like to see a comparison with Indices that are Midcap/Smallcap heavy or comparison with category returns of Multi-cap, Midcap and Small Cap Mutual Funds.

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May 29, 2017 03:36 PM

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