"To buy low and sell high." Keep 2 important things in mind.

One common stock market "fallacy" is the way to make the most profit is "to buy low and sell high."

It is a beautiful idea if you can do it. 

The truth is, no one knows what is low or high.


Some examples:

• In the recent severe bear market in 2007, many people who saw their stocks decimated a great deal thought they were low.  They never dreamed they would go even lower.

• By the same token, once the stocks started to go up in 2009, many people said, "I wont be caught again; I won't buy them unless they are really cheap."  Of course, they have never been at those low levels since.  They never became "really cheap."

• I have seen people sell stocks which they thought were high, based on what they had been previously, and the stocks went higher and higher.  Then news became public that justified the rise, and what had seemed high previously didn't look high any more in the light of new developments.  

• The same works in reverse.  Perhaps a stock seems low in relation to its dividend.  It goes lower and lower.  Then the dividend is passed or cut and the supposed "bargain" is no bargain at all.

Keep 2 important points in mind


At some point, stocks are genuinely "low" or "genuinely "high."  You may be successful in knowing what that point is if you keep two things in mind.


1.   First, remember that stocks invariably become "undervalued" or "overvalued."

• They overshoot their logical goals or levels

2.  Next, be sure you feel you have a special reason for expecting a turn or change especially when you are trying to buy low.  

• You surely don't want to own a stock that is cheap enough - but stays cheap.  
• So you must feel that you can see improvement or recovery reasonably soon ahead.

Conclusions:

"Buy low, sell high" is one of those wonderful market fallacies or ideas which may work out well for those who can learn the ropes. 

It can be a rather expensive idea if it is just applied as a generalization.

Market price fluctuations have only one significant meaning for the true investor.

Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity 

• to buy wisely when prices fall sharply and 
• to sell wisely when they advance a great deal. 

At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.

Can the average investors benefit by buying AFTER each major decline and selling out AFTER each major advance?

Buy-Low–Sell-High Approach

We are convinced that the average investor cannot deal successfully with price movements by endeavoring to forecast them. Can he benefit from them after they have taken place—i.e., by buying after each major decline and selling out after each major advance?

The fluctuations of the market over a period of many years prior to 1950 lent considerable encouragement to that idea.

• In fact, a classic definition of a “shrewd investor” was “one who bought in a bear market when everyone else was selling, and sold out in a bull market when everyone else was buying.” 
• If we examine the fluctuations of the Standard & Poor’s composite index between 1900 and 1970, we can readily see why this viewpoint appeared valid until fairly recent years.

Between 1897 and 1949 there were ten complete market cycles, running from bear-market low to bull-market high and back to bear-market low.

• Six of these took no longer than four years, four ran for six or seven years, and one—the famous “new-era” cycle of 1921–1932—lasted eleven years. 
• The percentage of advance from the lows to highs ranged from 44% to 500%, with most between about 50% and 100%. 
• The percentage of subsequent declines ranged from 24% to 89%, with most found between 40% and 50%. (It should be remembered that a decline of 50% fully offsets a preceding advance of 100%.)

Nearly all the bull markets had a number of well-defined characteristics in common, such as 

• (1) a historically high price level, 
• (2) high price/earnings ratios, 
• (3) low dividend yields as against bond yields, 
• (4) much speculation on margin, and 
• (5) many offerings of new common-stock issues of poor quality. 

Thus to the student of stock-market history it appeared that the intelligent investor should have been able 

• to identify the recurrent bear and bull markets,
• to buy in the former and sell in the latter, and 
• to do so for the most part at reasonably short intervals of time. 

Various methods were developed for determining buying and selling levels of the general market, based on either 

• value factors or 
• percentage movements of prices or 
• both. 

But we must point out that even prior to the unprecedented bull market that began in 1949, there were sufficient variations in the successive market cycles to complicate and sometimes frustrate the desirable process of buying low and selling high. 

• The most notable of these departures, of course, was the great bull market of the late 1920s, which threw all calculations badly out of gear.* 
• Even in 1949, therefore, it was by no means a certainty that the investor could base his financial policies and procedures mainly on the endeavor to buy at low levels in bear markets and to sell out at high levels in bull markets. 

It turned out, in the sequel, that the opposite was true. 

• The market’s behavior in the past 20 years has not followed the former pattern, nor obeyed what once were well-established danger signals, nor permitted its successful exploitation by applying old rules for buying low and selling high. 
• Whether the old, fairly regular bull-and-bear-market pattern will eventually return we do not know. 
• But it seems unrealistic to us for the investor to endeavor to base his present policy on the classic formula—i.e., to wait for demonstrable bear-market levels before buying  any common stocks. 

Our recommended policy has, however, 

• made provision for changes in the  proportion of common stocks to bonds in the portfolio, 
• if the investor chooses to do so, 
• according as the level  of stock prices appears less or more attractive by value standards.*

Warren Buffet's strategy on technical analysis

Warren Buffet's strategy on technical analysis
Apr 05 '00

After much research and experience in investing I've discovered a simple strategy which works very well for profitable investing. It's a composite of Charles Schwab's and Warren Buffet's strategy. As you may know, Warren Buffet started with a little investment decades ago and now he's the third richest man in the world with over $30,000,000,000 in stock in the company he built. Charles Schwab is the genius who began the most successful off-price brokerage in the world. Here's what they say about investing and technical analysis:

Rule number one: Buy a company you'd be willing to hold for a lifetime.

When you put your money in a stock, you become an owner of that firm. You're essentially buying part of it and you reap the profit from the shares you buy in terms of earnings per share. Then the company may pay out those earnings per share in dividends or invest back into the company for growth. Make sure that you're buying a firm that you can depend on, even when the market is down. Investing isn't about the quick in-and-out schemes that lose most day-traders money. That's called gambling. Investing is putting your trust and your resources into a firm which you're willing to commit your hard-earned money to. This leads to my next point.

Rule number two: Ignore technical analysis.

Technical analysis is used to predict whether or not a stock will go up or down in the short term. Some people think that they can ignore the fundamentals of the companies they buy based on technical analysis and end up losing large amounts of money. Yet, no responsible financial advisor would recommend or practice buying based solely or largely on technical analysis. That practice is used for what I defined to be gambling. Essentially relying on technical analysis involves looking at the volume of trading, advances/declines in the share price, and trying to determine whether or not the price will continue upward or reverse. For example, a lot of people buy or sell based on momentum. They jump on the bandwagon or abandon ship with the rest of the crowd. Yet, these fluctuations based on the herd mentality do less for those playing on technical analysis and more for the investor who looks for good value in shares. For, often people selling on technical analysis overshoot and cause a stock's value to be worth less than its fair value. Thanks to people who get burned on these losses, investors find unique opportunities to snatch up great comanies at bargain-basement prices.

Rule number three: Focus on the Fundamentals.

You cannot accurately predict the short term price fluctuations of stocks. Let me repeat myself: You CANNOT accurately predict the short term price fluctuations of stocks. If you could, those stock experts working at Merrill Lynch and Goldman Sachs wouldn't be working. Believe me: they've got a lot more experience than you or I do, and they're not gambling. So, instead of "investing on luck" or momentum, take control and do your research. Find out whether the company is consistantly outpacing the industry. See what the price to earnings ratio is and whether it's being undervalued. Find out whether earnings per share has been increasing or decreasing. See what the financial community thinks by examining analyst opinions covering the firm. All this information is easily accessable over the internet and free of charge. IF you do your homework your gains will be all but certain OVER TIME and you'll feel satisfied and proud with your investment choices. You may even become attached to your company and become well acquainted with it.

Rule number four: Buy long term

Besides your liklihood of making money going up, there are tax advantages to holding stocks long term. For one thing, if you simply hold onto your stock, you won't be taxed until you pull out and your investment can continue to compound, without erosion, until you sell. But, if you constantly buy and sell, then you're taxed on all your gains and you don't get to pay the lower capital gains tax. Instead, it's taxed as regular income, which is a higher tax rate. For most daytraders, tax erosion is one of the biggest problems with making any profit. But, if you do sell make sure it's because your company has been consistently underperforming. This leads to the next point:

Rule number five: Buy low sell high.

Lots of people buy stocks and when the price dips they get scared and sell. Other people see the price of their stock go up and buy more. But, this seems like reverse logic, right? If you own a good company, short-cited investors can drive down a stock price temporarily because of one below-expected earnings report or a bit of bad news. Let these be times for you to take advantage of other people's hysteria and buy at an attractive price.


Be smart in your investment decisions. Warren Buffet didn't find himself where he is today by buying on momentum or following technical analysis. Instead, it took research, patience, and commitment. If you can commit yourself to these same principles, you too will enjoy financial success.

http://www.epinions.com/finc-review-1935-D65AB19-38EAE41E-prod2

Buy Low - Sell High, Buy High - Sell Higher

Many investors prefer to pay low for a stock and hope that its price will eventually rise. However, they fail to realize that sometimes it is better to pay a higher price for a stock that has the potentials for a future growth. The money you will save from purchasing a down stock may not justify your investment if the stock continues to languish.

For example, let's assume that stock X has a P/E (price to earnings ratio) equal to 25, whereas stock Y has a P/E equal to 8. If you are ignorant enough and decide to make your investment decision based only on this metric, then stock X will seem as being overpriced.

Let us make another assumption, namely that stock X has experienced this overpricing for several periods of times. On the other hand, stock Y has consistently been under the fair price of the market.

What is more, stock X is experiencing a trading activity that is near the 52-week high, whereas stock Y has experienced a 20% down in its trailing 180-day average.

Typically, investors fail to recognize that the maxim stating that what goes down must come up and the vice versa, doesn't always hold truth. There are many exceptions back in the history.

If you follow this maxim, you will probably conclude that stock X is about to decrease. On the other hand, again under the maxim stated above, an investor may conclude that stock Y is about to make its big jump since its price is low and the stock market will recognize its strengths. Both assumptions may turn out to be completely wrong.

Buy High, Sell Higher

This strategy is highly recommended if you expect that the stock will continue to grow in the future. Thus, you should not be scared off by the high price. A stock that provides a steady percentage of growth is worth paying its higher price today, because if it continues to grow at this rate, its price will be even higher tomorrow.

You should make a careful research before following the Wall Street pack. You may probably regret that you haven't purchased the stock several months ago before its price has not jumped to the sky. However, if you make a careful research and verify that the stock possesses good potentials for future growth, then you should not be discouraged from investing in it.

Keep in mind that the stock's price will rise and fall in the short term, but over the long term a growth stock will move upwards.

Buy Low, Sell High

Many investors prefer to search for bargains, which they can later sell at a higher price. However, if you decide to apply this strategy you should be well aware that the price of the stock may not rise again.

Value investors tend to look for stocks that are overlooked and undervalued by the stock market. However, price is only one of the factors that are part of their selection process. The key consideration made is whether the stock provides steady potential for future growth.

Final Piece of Advice

Avoid making investment decisions based only on the price of the stock because a stock that is down is not obligatory to go up. Additionally, a stock that is up may come down and may not. Look at the other metrics in order to make a more educated and successful decision.

http://www.stock-market-investors.com/stock-market-advices-and-tips/buy-low-sell-high-buy-high-sell-higher.html

Buy Low + Sell High = Big $$$

Why investors lose money in the Stock Market

Alternatively, the herd mentality

Are You Paying Too Much For Stocks? Market Value is Not Equal to Actual Value

Are You Paying Too Much For Stocks?

Market Value Not Equal to Actual Value
A small loan can help you if you are short of cash until your next payday, but if you invest in the stock market and follow the crowd in their buying and selling habits, you may end up with many more liabilities than assets. Why? Have you noticed how much the stock market fluctuates in a day, and also the ups and downs of prices? Does that mean that the companies’ values goes up and down as much as the share price, or does that mean that there may be some other force at work here? As you can see, market value of a share doesn’t equal ACTUAL value of the same share, in terms of the value of a company.

Market Price Based on Emotions, Not Logic
One of the pioneers in value investing, Benjamin Graham, believed that many people rely too much on their emotions when investing rather than their logic. This explains the fluctuations of the market, and also why a lot of people think it’s risky to invest in it. What makes it risky is the constant buying and selling that goes on day after day, hour after hour. This constant buying and selling is what either drives the share price up or down, and it’s what creates the risk.

Ben Graham suggested in his book “The Intelligent Investor” that if you want to build your wealth from the stock market, you need to use a “dollar cost averaging” technique, meaning to consistently buy more shares at a lower price over time. As inflation and company values grow over time, your investments will be worth more in the long run. It’s also called “buy low and sell high” which you might have heard about. Unfortunately, most people tend to bring their emotions into their investing, and will panic and sell when the price is going down, because they are afraid to lose any more money on their investments, leaving them open to take out a small loan to survive.

Beyond the Smoke and Mirrors
The stock market is riddled with confusing terms, acronyms and policies, making it very difficult for the average investor to understand. All this is just smoke and mirrors designed to keep most people in the dark and dependent on high-priced brokers to navigate the investing maze for them. However, if you were to peek behind the curtain, you would see that all the confusion is just smoke and mirrors.

Inflated Price? Inflated Value!
In an effort to control the market prices, brokers and fund managers will either buy or sell enough shares to drive the price back up or down, depending on where the prices are going. Perhaps it’s due to a company that got good news or bad, and investors are trying to position themselves to not lose a lot of money, or make some. This tends to skew the value of a share price, and unbalances the market. Thus, a share price that has risen too quickly will have many shares sold off by fund managers or brokers to drive the price back down. Similarly, if a share price is dropping too fast, they’ll buy as many shares to even up. So if there are inflated prices, don’t go believing it’s actually worth that much. In fact, they may not be worth much at all!

P/E Ratio Tells it All
There is a very simple way to determine if a certain share price is on target or not—look at the Price per Earnings ratio. This is a valuation method that takes the company’s current share price on the market divided by the per-share earnings over a certain time frame, usually one year. If the price of shares in a company are $ 24 per share, and the earnings over the previous year were $ 2, the ratio of P/E is 12.

• Typically, the higher the P/E ratio is, the higher the expectations investors will have for company growth. This means that you will be able to see higher earnings within the next year with this company.
• However, the lower the ratio, the slower the growth regardless of what the market is doing.

Buy Low, Sell High
When you can learn how to find the correct value of a company or share, you will know when the share price is at its lowest, and when you can buy. After share prices crest, you can sell your shares and pocket the rest without needing a small loan. If you do this, you will be able to make money on the stock market when everyone else is losing money.

http://www.401kinformationblog.com/are-you-paying-too-much-for-stocks/

Neither Buying at High Price nor Selling at Low Price.

The eager buyers of shares pushed prices to dangerously high levels, so by 1970, most stocks were fatally overpriced.  By almost any measure, people were paying far too much for the companies they were buying. 

This sort of craziness happens a few times in a century, and whenever it does, the market "correct," the prices drop to more sensible levels, and the people who bought at the top are stunned and depressed.  They can't believe they've lost so much money so quickly.

Of course, they haven't really lost anything unless they sell their shares, but many investors do just that.  They dump their entire portfolio in a panic.  A stock they acquired for $100 when it was overpriced, they unload a few weeks later for $70 or $60, at a bargain price.

Their loss is the new buyers' gain, because the new buyers will make the money the sellers woulod have made if they'd held on to their investments and waited out the correction.

The Best Reason for Buying Low

"Buying low makes it a lot easier to sell high."

Buying good companies when the headline news is bad

Buying good companies when the headline news is bad is the hardest thing to do (psychologically), but it's the simplest way to buy low. And buying low makes it a lot easier to sell high.

What the Swine Flu Panic Means for Your Portfolio

"Buying low makes it a lot easier to sell high."

What the Swine Flu Panic Means for Your Portfolio
By Seth Jayson April 27, 2009 Comments (24)

It's a delicate subject, and people's lives are at risk, so I'll state right here, up top, that I do not intend to make light of this public health concern. I share the sympathies that we all have for individuals afflicted by the swine flu. (I've experienced a delirium-packed, 10-day version of the usual seasonal flu, and I wouldn't wish this illness on my worst enemy.)

That said, the reactions of the investing community already look ridiculous: "Markets Down on Swine Flu" read the headlines. Other writers will try to convince you to pile into vaccine names like GlaxoSmithKline (NYSE: GSK), or companies like Netflix (Nasdaq: NFLX), for which a simplistic, "stay-at-home" argument can be made. This is simply rank trend speculation in reverse.

How to really profit
If you really want to find opportunities relating to the swine flu story, I suggest you do the opposite of what most people are advocating. For instance, consider inverting one particularly brazen and short-sighted call that was reported by Bloomberg this morning: UBS downgrades Mexican stocks from "top pick" to "underweight" because of the swine flu.

Really? An entire country's strongest businesses will be permanently impaired because of this health crisis? Would you write off entire segments of the U.S. economy if the illness got worse here? Would you sell Procter & Gamble (NYSE: PG)? Ditch Home Depot (NYSE: HD)?

Sure, the Mexican economy is generally more fragile than ours, but most of the big-name firms trading on our exchanges are anything but weak. Beverage and minimart king FEMSA will likely sell fewer soft drinks and beers over the coming weeks. Will Gruma sell fewer tortillas, Industrias Bachoco fewer chicken chunks? Probably.

Will this matter for the long term?
Very unlikely If you are investing in strong names for the long term -- and that's how you should be investing -- these are the times when you should be more interested in buying stocks, not less. Flu epidemics are terrible, but they're also normal. So are economic cycles and (in Mexico) the occasional currency panic.

Buying good companies when the headline news is bad is the hardest thing to do (psychologically), but it's the simplest way to buy low. And buying low makes it a lot easier to sell high.

That's the takeaway from the two wealthiest investors in the world -- Warren Buffett and Carlos Slim, who made their fortunes buying companies with competitive advantages on the cheap, often during times of uncertainty. Despite recessions, oil shocks, currency convulsions, SARS, and bird flu, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), Telmex, and America Movil (NYSE: AMX) have made them very wealthy.

We've recently revamped Motley Fool Hidden Gems, putting real money into small-cap stocks, to enable us to take advantage of exactly this kind of short-term market craziness. At times like this, we're more interested in our favorite Mexican stocks: Grupo Aeroportuario del Sur and Grupo Aeroportuario del Pacifico. As monopoly airport operators with high fixed costs, both would see turbulence due to a temporary dip in air travel (one they're already getting thanks to the economy).

But in the long term, monopolies like these thrive and enrich shareholders. Ditto the major players I mentioned further up. So unless you think Mexico is forever on the wane, it's time to look at buying these stocks, not selling them.

Seth Jayson is co-advisor at Motley Fool Hidden Gems. He owns shares of Grupo Aeroportuario del Sur, FEMSA, and Berkshire Hathaway. Grupo Aeroportuario del Pacifico and Grupo Aeroportuario del Sur are Hidden Gems recommendations. Berkshire Hathaway and Netflix are Motley Fool Stock Advisor selections. Berkshire Hathaway and The Home Depot are Motley Fool Inside Value selections. Procter & Gamble is a Motley Fool Income Investor recommendation. America Movil and FEMSA are Global Gains picks. The Fool owns shares of Procter & Gamble and Berkshire Hathaway. The Fool has a disclosure policy.

http://www.fool.com/investing/small-cap/2009/04/27/what-the-swine-flu-panic-means-for-your-portfolio.aspx

Why You Should Love Economic Cycles

Why You Should Love Economic Cycles
By Motley Fool Staff
March 11, 2009 Comments (0)



With regard to the stock market, legendary investor Bernard Baruch was sure of only one thing: "It will fluctuate." Baruch's remark is the stock market's only guarantee, and it's no less true for the various industries that make up the business environment. No one can time these ups and downs precisely, but paying close attention to which way the economy and market are moving can help you spot great investing opportunities.

Basic economics
All industries and businesses follow the same laws of supply and demand. This concept has never changed and never will, and it follows a clear cycle.
During periods of high demand, high capacity utilization, and increasing operating margins, businesses begin implementing steps to meet the demand. The result usually includes new plant investment, increased product pricing, and increased production -- until supply exceeds demand. Then prices decline, less capacity gets used, and margins shrink. This period continues until -- you guessed it -- the available supply is outstripped by demand, at which point the cycle starts all over again.

For sale by owner
The homebuilding industry offers a near-perfect example of this cycle. After the tech bubble (a cycle in itself), the economy became a low-interest rate environment, making access to capital very easy and cheap. Demand for housing grew rapidly. First-time home buyers found it more manageable to assume loans, and newly minted real estate speculators used the flow of cheap money to "flip" homes. Homebuilders responded by turning out more homes and acquiring land lots at a blistering pace. For years, all was well.
Of course, the clock had to strike midnight sometime. The increased housing production ultimately exceeded demand, and homebuilders like Ryland (NYSE: RYL), KB Home (NYSE: KBH), and DR Horton (NYSE: DHI) now command a fraction of the market values they enjoyed in rosier times. No matter how fine these companies' management teams might be, with supply exceeding demand, it's not difficult to see why these firms have been battered.

In the oil patch
The same situation has playing out with just about anyone involved in energy these days. For years, energy prices languished as supply outstripped demand. But then demand started steadily growing, until oil prices reached nearly $150 per barrel last year.
In the end, the recession stopped that trend in its tracks, causing oil companies like ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) to fall dramatically from their 2008 highs. Yet while the prospects for homebuilders seem cloudy for the indefinite future, many still believe that energy prices are now unsustainably low, which could start a new upward cycle both for oil producers and natural gas companies such as Chesapeake Energy (NYSE: CHK) and XTO Energy (NYSE: XTO).

The key takeaway
An old proverb says, "What has risen shall one day fall, and what is fallen shall again rise." Should investors concentrate their efforts on trying to time such cycles? Not at all, Fools -- that's a sucker's game. However, we do think that it's exceedingly important to understand the industries in which you invest, to reduce the chance that you'll make your investments at inopportune times.
As investors, we attempt to buy low and sell high -- but don't confuse that with buying at the absolute bottom, and selling at the absolute top. That level of investing precision is mostly a matter of luck. Instead, Fools are better off focusing on buying underpriced businesses and selling overpriced ones.

Further Foolishness:
Is This the Next Incredible Buying Opportunity?
This Might Be the Market Bottom
Rule No. 1: It's OK to Lose Money

Want some help in figuring out whether a beaten-down company deserves your investment?

This article, written by Sham Gad, was originally published on Jan. 7, 2008. It has been updated by Dan Caplinger, who owns shares of Chesapeake Energy. Chesapeake Energy is a Motley Fool Inside Value pick.

http://www.fool.com/investing/value/2009/03/11/why-you-should-love-economic-cycles.aspx

Read This Before You Sell All Your Stocks

Read This Before You Sell All Your Stocks
By Tim Hanson February 18, 2009 Comments (6)

We knew it was coming, but it's the news we've all been dreading. Yet there it was recently, front and center in The Wall Street Journal:
"Rank-and-file investors are losing faith in stocks."

The story is predictable

Yesterday, after all, we experienced yet another near-4% drop, plunging stocks close to their bear-market lows of November. Small investors, shell-shocked by losses this year, are selling what's left of their stocks and stashing cash in bonds and FDIC-insured CDs. According to recent data from the Investment Company Institute (and reported by the Journal), "Investors pulled a record $72 billion from stock funds overall in October alone ... [and] fund companies say withdrawals have remained heavy."

Indeed, Journal writer E.S. Browning profiles three such investors.

• The first, a 52-year-old, was "a big believer in stocks in the late 1990s" but is now putting all of his cash in CDs.
• The second was an aggressive investor in the 1990s, but moved to "a more conservative mix after the 2001 terrorist attacks" and has since become more conservative.
• And the third, a 25-year-old, loved stocks when he was earning 10% to 20% per year earlier this decade, but has now "shifted his retirement savings to corporate bonds, a money market fund, and a few utility funds."

That'll work out well

Look, let's get this out of the way right now. There's a place for bonds, CDs, and smart asset allocation in every portfolio. But what these three investors have in common is that they were buying stocks when they were high and going higher and are now selling stocks when they're low and (potentially) going lower.

In other words, they bought high and sold low ... exactly the opposite of what you want to do as an investor!

Now, I can understand the 52-year-old's motives better than the 25-year-old's. The former is nearing retirement and wants the security of a stable cash nest egg. But the latter is at least 30 years (probably more) from retirement and is likely dooming himself to decades of subpar returns.

Provided the reporting is accurate, of course

Given plummeting interest rates, the best money market rate I can find today is 3% per year. At that rate, $10,000 will turn into about $24,000 over 30 years.

As for stocks, they don't generally decline 40% per year (as they did in 2008) all that often (though such declines are difficult to predict). In fact, over the trailing-30-year period stocks have returned about 7.6% per year -- which would turn that same $10,000 into about $90,000 ... a pretty darn big difference.

All of this is to say, if you have plenty of time until retirement (let's call it 10 years or more), now is the time to be a buyer of stocks. Given depressed valuations, you may even do better than 7.6% per year. And even if you're nearing or in retirement, chances are you have some money that you don't intend to spend for another 20 or 30 years. Those long-term savings are also a candidate for the stock market, though again, you'll want to have a sound asset-allocation game plan in place before you invest.

Think about it

If you believe Google (Nasdaq: GOOG) and Amazon.com (Nasdaq: AMZN) will be dominantly profitable media titans 25 years from now, would it be better to buy the stocks today at $350 and $60, respectively, or to have done so 12 months ago when they were 15% to 30% higher?

That's not to say they can't go lower from here, but when you buy stocks, you should do so with the same time horizon as your money.

Similarly, if you believe China is the next global economic superpower, then you can't beat today's prices for China Mobile (NYSE: CHL) and PetroChina (NYSE: PTR), the country's telecom and energy giants, respectively.

Finally, even if you don't believe in any individual stocks, you can still park your long-term money in a low-cost total market index fund (Vanguard's Total Stock Market Index (VTSMX) is a good choice), which will give you exposure to fantastic, dividend-paying firms such as Coca-Cola (NYSE: KO), Procter & Gamble (NYSE: PG), and Microsoft (Nasdaq: MSFT).

Yet these are the stocks investors are selling today. It just doesn't seem to be the smartest long-term move.


This is ...At Motley Fool Global Gains, we believe in taking advantage of temporary market downturns to position our portfolios for the long term. We also believe that thanks to development in places such as China, India, and Brazil, the next decade will prove to be a very exciting and profitable time to be an investor.
If you agree, then click here to join us free at Global Gains, where we identify two of the world's best buying opportunities each and every month.

Rather than run from stocks, we are taking advantage of current volatility to buy some of the world's best companies. You should consider the same.

To learn more about a free one-month guest pass to Global Gains, and to learn about our new asset-allocation guide to help our members better identify the stocks and funds that fit in their portfolios and in what percentages, just click here for more information.

Tim Hanson does not own shares of any company mentioned. The Motley Fool owns shares of Procter & Gamble. Amazon.com is a Motley Fool Stock Advisor recommendation. Microsoft and Coca-Cola are Inside Value selections. Google is a Rule Breakers pick. Please congratulate the Fool's disclosure policy on declaring itself the world's best.

http://www.fool.com/investing/international/2009/02/18/read-this-before-you-sell-all-your-stocks.aspx

Buy Low Sell High Approach

We are convinced that the average investor cannot deal successfully with price movements by endeavoring to forecast them.

Can he benefit from them after they have taken place - i.e. by buying after each major decline and selling out after each major advance?

The fluctuations of the market over a period of many years prior to 1950 lent considerable encouragement to that idea.

In fact, a classic definition of a "shrewd investor " was "one who bought in a bear market when everyone else was selling, and sold out in a bull market when everyone else was buying."

Between 1897 and 1949, there were ten complete market cycles, running from bear-market low to bull-market high and back to bear-market low.

• Six of these took no longer than 4 years,
• four ran for 6 or 7 years, and
• one - the famous "new era" cycle of 1921 -1932 - lasted 11 years.

The percentage of advance from the lows to highs ranged from 44% to 500%, with most between about 50% and 100%.

The percentage of subsequent declines ranged from 24% to 80%, with most found between 40% and 50%. (It should be remembered that a decline of 50% fully offsets a preceding advance of 100%)

Nearly all the bull markets had a number of well-defined characteristics in common, such as

(1) a historically high price level,
(2) high price/earnings PE ratio,
(3) low dividend yields as against bond yields,
(4) much speculation on margin, and
(5) many offerings of new common-stock issues of poor quality.

Thus to the student of stock-market history it appeared that the intelligent investor should have been able to identify the recurrent bear and bull markets, to buy in the former and sell in the latter, and to do so for the most part at reasonably short intervals of time.

Various methods were developed for determining buying and selling levels of the general market, based on either value factors or percentage movements of prices or both.

But we must point out that even prior to the unprecedented bull market that began in 1949, there were sufficient variations in the successive market cycles to complicate and sometimes frustrate the desirable process of buying low and selling high.

The most notable of these departures, of course, was the great bull market of the late 1920s, which threw all calculations badly out of gear.

Even in 1949, therefore, it was by no means a certainty that the investor could base his financial policies and procedures mainly on the endeavor to buy at low levels in bear markets and to sell out at high levels in bull markets.

It turned out, in the sequel, that the opposite was true. The market's behaviour in the past 20 years has not followed the former pattern, nor obeyed what once were well-established danger signals, nor permitted its successful exploitation by applying old rules for buying low and selling high.

Whether the old, fairly regular bull-and-bear market pattern will eventually return we do not know.

But it seems unrealistic to us for the investor to endeavor to base his present policy on the classic formula - i.e., to wait for demonstrable bear-market levels before buying any common stocks.

Our recommended policy has, however, made provision for changes in the proportion of common stocks to bonds in the portfolio, if the investor chooses to do so, according as the level of stock prices appears less or more attractive by value standards.



Ref: Intelligent Investor by Benjamin Graham