Key Principle No. 8

Buy low, sell high.

The seemingly simple and self-evident “buy low, sell high” is one of the most controversial and misunderstood principles we believe in.

We love to find new ideas on the 52-week low list. Even better we like stocks now selling at 5-year, or even 10-year lows. We don’t wait for them to “bottom out,” or for the chart to get better.  We buy at the new low and add to our position if it goes lower.

We cannot count the times we have heard:

  • Don’t try to catch falling knives.
  • Don’t try to catch falling pianos.
  • Don’t try to catch falling safes.
  • Don’t try to catch … you get the idea.

VERY FEW VALUE INVESTORS ACTUALLY BUY LOW AND SELL HIGH. They believe the maxims listed above.

A few honest value investors explicitly incorporate some type of positive price momentum component into their buy discipline. A much greater percentage will not admit it, but in practice “wait for the chart to improve”.

By now it should be obvious that we most certainly do not believe in technical analysis.  At best, it is a weak justification to follow the trend.  At worst, technical analysis is a mental crutch that completely overwhelms your investment judgment.

In our model portfolio we will certainly show clear examples of buying low, and hopefully some examples of selling high.

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