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F.I.T. STOCK EDUCATION

Buy Low and Sell High or Buy High and Sell Higher? 

Buy low and sell high is often the way people view stock market investing, but I say buy high and sell higher.  This however is not just my theory it is the theory of some of the greatest investors of our time, like: William O'Neil, Nicolas Darvas, and Dan Zangar.  Why do I make this statement? The simple answer is supply and demand. 

When a stock price goes down more supply is created for this stock but it is not always clear why this supply is being created.  Has the companies product become out dated, has management changed, is there something wrong in the balance sheet, have they not kept up with technology...it could be any of several reasons.    On the other hand, when a stock goes up it shows demand for the companies business.  They may have a new product, new management, created a new technology, changed the way we do business...whatever the case, demand becomes strong for the company and prices start to elevate.  But let us put this supply and demand issue into a more common sense approach.

Many who subscribe to this newsletter are from a strong business background so let me put forth this scenario.  Let us say it is time for two of your employers annual reviews and to divvy out raises.  Employer A comes in and you have noticed over the last year that this employees sales numbers have continually dropped, he does not know his product information, he is to busy mingling with co-workers than getting out and mingling with potential new clients, and all of this has showed up in his production at work.  His sales have decreased and he has no potential new clients in the pipeline.

Employer B comes into work early each day and leaves late each night.  He is constantly researching the company's products and knows the information well.  He consistently works the phone lines networking for more business.  You notice that his sales numbers are consistently getting better each quarter and annually.  This individual has helped increase your company's earnings.

Now for the big question, who will get the raise, employer A or employer B?  I am sure that all of you would say employer B deserves the raise, as he has shown his skill as a salesman and has produced excellent sales numbers for the company.  Because of his production you are willing to pay him more.  This employer has proved his worth and it is all in the numbers.  This employee has proved his worth, his demand.  Buy high and sell higher.

Investing in the stock market should be no different then employer B.  If a company is proving itself through increased earnings, increased sales, profit margins that are increasing, and products that are high in demand, why would we not want to pay more for this company that is proving its value and demand through its production?  Or better yet, why would we want to pay less for a company just because it is cheap, in the hopes that it may go up one day even though the numbers have been decreasing.

In the stock market, just like in every day life, you will usually get what you pay for.  A cheap item is usually cheap because it is made from less expensive materials and wont last as long.  An expensive product is usually made of higher quality materials and will last substantially longer.  We are willing to pay more for the quality behind the more expensive product.  You do not see to many top sales people driving around in a Chevy Cobalt, you see them in a shiny BMW.  They are willing to pay for high quality products.

The same is true in sports.  A team is willing to pay an athlete more money because of the increase in their production.  Their numbers are continually improving, thus giving them in increase in their contract.  If you do not produce you are either cut or put on the trade block.  A company that continues to produce better sales numbers, increased earnings, and stronger profit margins is rewarded through a higher stock price.  Now the question is do you want to put your hard earned investment dollars in the company that is consistently increasing and producing solid numbers or the company that has some uncertainty to it with decreasing numbers and a decreasing stock price because it is cheap.  Pay for performance.  Buy high and sell higher.

As a stock market investor be willing to pay for success.  Be willing to pay for a stock that is continually proving itself through its earnings, sales, and profit margins.  Be willing to pay for quality as supposed to quantity because something is cheap or at a bargain.  In every other aspect of our lives we demand quality and strong performance, so why not demand this from the stocks we buy.  Buy high and sell higher and you will start to improve the numbers in your stock market portfolio.

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The F.I.T. STOCK PLAN