If, you bought a share at $1 three years ago. Now you sell it at $6, four months later stock market crashed. The share drops to $2 one year later, and you start to collect again. This is BUY LOW, SELL HIGH. Sounds very simple to make good money.
This is assuming that you had done a thorough fact driven analysis and made an informed decision.
Sounds simple, but it is quite difficult, here's why.
When you bought at $1, it must be a very bad market. After you bought it might fluctuate, may be to the low of $0.70 within 3-4 months which is a 30% paper loss. There are a lot of bad news around. Your friends might ridicule and taunt you for buying it at such a market. To justify you made a wrong move, there will be a lot of conventional wisdom driven theories like "The Worst has yet to come" "Don't catch the falling knife" "We are still not seeing the end yet". If you are buying a plantation stock, theories to justify your foolishness might be "The palm oil price is too low""Demand for palm oil is weak now""Soil bean oil is a great threat to palm oil". When it drops further to $0.70. It further proved you are wrong. Although eventually it is a great investment, but within this 4 months you have to see price fluctuation, negative news, and taunts from your friends. Do you have a big strong heart to hold on to your fact based study??? 4 months is not that short, can you stand it?
Same thing, when you sell it at $6. It must be a great bull market. Your study shows it is overvalued and the market is on the verge of huge correction. After you sold it, it might continue to go up to $7 in 4 months. Again, you will be flooded with good news from the media, and again taunting from your friends for selling so early to miss the boat of such great opportunity. Common theories to prove you wrong are like "We are in a very strong economy" "The bull is running with unstoppable momentum" "Demand for palm oil is ever growing" "It's different this time, there is strong demand from Asia". Again you will be laughed around for 4 months, there's a possibility you will live with regret. So again a big strong heart is needed.
Just look at some famous examples of Warren Buffet (WB).
During the dot com bubble early 2000, WB stayed at the sideline due to reasons that most of the tech stocks are horribly overvalued and their business are "difficult" to understand. As a result, he is heavily taunted by the public for being missed out this time. When the bubble bursts, everyone burnt, but WB's portfolio still grows steadily as ever. People might find ways to criticized him for missing out the chance to enter and "goreng" to enjoy the sudden Windfall profit, but actually it's those people who suffer the Windfall loss ultimately.
Another more recent example, PetroChina. WB started to buy it in 2002. Total initial investment $500 million. He sold all his stakes in 2007, with a total profit of $3.5 billion, solely because it is overvalued. It was the time where we talked about how strong China would be and how it would rule the world. After the sale, PetroChina continue to rise and made another all time high, where people estimated WB had missed out another few billions profit for selling early. Again, WB was being laughed at for making a poor investment decision (although he made $3.5 billion profit). Everyone what happened then. PetroChina crashed and goes back to where it was.
That is why, during bull market, it is easier for analyst and stock gurus to shout for buy call with reasoning of strong bullish momentum, and call to BUY HIGH, SELL HIGHER. You will be under a lot of pressure if you made anti climax caution statement to warn people of high valuation.
For retail investors, buy during bull market is much much more comfortable. At least you can see your shares stay there, or goes up a while (a few months or may be 1 year) to make you feel safe. At least you are making same move as everybody around you, no body will laugh at you, and you feel good.
So it is more comfortable to feel good and die later, rather than undergo big pressure to earn big bugs later. This explains why theory of BUY HIGH SELL HIGHER is well accepted.
For smart investors who wants to BUY LOW SELL HIGH:
Do your homework, make your smart moves QUIETLY, avoid sharing with others. Then highly likely you will enjoy earning big bugs, while staying away from noise and rubbish talks.
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