Buy Low Sell High Strategy: The Complete Guide
So, you’ve come across the famous ‘buy low sell high’ adage and are wondering what does it mean?
Read on to understand its meaning and how should we apply it in our daily lives!
This comprehensive article tackles all there is to know about making profits, when to buy, and when it is a good time to sell your goods.
Buy Low Sell High: What does it mean?
In a world that is all business and investment, there’s a proverb that goes ‘buy low sell high’.
What it means, in simpler words, is buying stocks or securities when they are undervalued and selling them when they are overvalued.
Traders or rookies gauge the fluctuations in the market closely so that they can make profitable decisions.
It’s a crucial trading tactic that is well known and forms the foundation for many business principles.
Many traders wait for the market to hit its lowest so that they can buy shares at cheap and sell them once the value skyrockets.
Easier said than done! We believe that the market will rise but instead, there is a possibility of it declining, leading to the risk of loss.
For the long-term this might work but if you want to reap rewards short term the better way is to buy high and sell them even higher.
The improved ‘Buy High and Sell High’ Strategy
It basically is investing or buying when others are investing, this makes the demand for that stock to skyrocket increasing its value.
We all know market prices are determined by the balance of buyers and sellers.
You catch the market when it’s in full swing. This is known as ‘Momentum Investing’.
There is no doubt of it going lower in the near future, so you wait for your sweet moment and sell the goods at a higher percentage, hence making a profit.
Which you can reinvest in something else.
A great example that follows the same principle is Forex (FX). It is a foreign exchange market for trading international currencies.
Retail traders can sign up and then buy currency and exchange it with local and international.
A great foreign exchange app is OctaFx, which has recently become popular in Asia.
You buy a currency at low rate and then exchange it when the value appreciates! Basically, you bought cheap and sold higher!
The newer improved version does not allow for guessing or predicting because forecasting is dangerous and requires skill and patience.
Real Investors focus more on;
Riding the Wave like a Pro.
Below is an example of a stock chart. You can see how it fluctuates. The prices rise and fall making it impossible to predict when it is a great time to sell or invest.
You have two options either stick for the long-haul or wait for short-term rewards.
For people who want a greater profit, why not remain invested regardless of the fluctuations? This may sound counter-intuitive because the market is diving but staying put and not letting all the bumps affect you, may finally pay off.
To make a good profit one needs to learn how to ride the wave. Familiarize yourself with the general market trends.
The buy low sell high strategy relies on prices, these stock prices fluctuate so much on a regular basis that it is impossible to predict when to sell and when to buy.
That is why investors prefer the ‘buy high, sell higher’ or ‘stick for the long-term’ method.
Diversify Your Investments
Diversifying Investment simply means “don’t put all of your eggs in one basket”
If we study the last decade in investments, we can see that no investment is foolproof. Each investment experiences its ups and downs, it’s natural.
The general trend is when one sector sees an inflow of capital it’s at the expense of another.
People looking to invest in something can greatly reduce the risk by diversifying their investments. Look for ways to diversify your portfolio.
A diverse portfolio is a collection of investments in different assets that allow for maximum returns while minimizing risks. It’s the best defense against a financial crisis.
A well-diversified portfolio is a mixture of;
Diversification works because the assets don’t correlate to each other. Each asset reacts differently to the same market trend.
This helps when the value of one asset falls and the others’ rises. The chance of loss is reduced because if one investment isn’t doing good the others are.
It is rare that your entire portfolio would nosedive by a single event.
For example, stocks do well when the economy is booming. Investors pitch in high bids to make the most out of the rise.
Bonds on the other hand work when the economy is in recession and the stock value has plummeted. This results in one sector outperforming the other.
The loss from one investment can be mitigated by the profits from another.
Cryptocurrency is the new money. A crypto is a digital currency that can be used to buy and exchange services and goods. They work by using the decentralized technology “Block chain”.
|Binance Coin||$87 billion|
However before investing in cryptocurrency keep in mind that they are not stable. They can be traded for 20000$ one day while on the next only for 3200$.
Advantages of Diversified Portfolio
Why People don’t Buy Low and Sell High all the Time
Buying assets for cheap and selling them high is a difficult strategy to implement because, for one, real investors and business owners always focus on the Value of a business, stock, or goods and never its price.
- The buy low sell high strategy is the mentality of a speculator. If you want to make a profit you need to think like a true investor and focus on the future. Most people can’t do that.
- Making such decisions requires skills, experience, patience, and capital. People can’t judge the highs and lows properly. Maybe if we had a crystal ball, who knows?
You might think how hard it can really be, just follow the graph! But that’s not all there is to investing.
3. Graphs fluctuate per minute, they’re not set in stone. One minute they are all-time high the next they take a nosedive for the worse! Plus reading graphs is the work of computers, not humans.
The second factor that comes to play is emotions. Never let emotions override your logic.
4. Anything that involves money involves greed and fear. Never be greedy always work with patience and don’t let fear keep you from taking risks. Behavioral Economics is a thing.
5. Most of the time people simply don’t have the funds or the guts to invest in anything.
6. Buy low sell high is a good strategy for short-term fast profits. For the long-term, the strategy involves high risk.
7. Market trends are balanced by buyers. Everyone cannot buy low as it would cause an immediate decline in the market. Nor can everyone sell at high as the prices would touch the sky!
8. Share/asset prices are determined by many factors. These include supply and demand, the company’s financial situation, future value, and profits.
9. The state the economy is in. Economic growth indirectly contributes to earnings growth.
The Buy All the Time Path
‘Buying high and selling higher’ along with ‘buy all the time’ are great strategies that are interlinked.
Most ordinary folks don’t have the insight to forecast market trends.
What works for them is buying all the time.
Look for investments that over a long period prove to be highly profitable. These may include real estate, buying shares, or investing in local companies/ businesses that have a high future value.
Keep on investing through the good and the bad times and surely you will reap rewards!
Both these strategies set you up for early retirement. By the early fifties, you have yourself a fat little nest egg and a permanent source of income.
Collectibles include art pieces, artifacts, art collection and much more. Owners of such pieces “rent out” their goods for a price.
For example, the notorious painting Salvator Mundi by Leonardo da Vinci is owned by a Saudi Prince.
These paintings generate revenue that goes to the owner.
The dress worn by Marilyn Manroe while she sang happy birthday to John F Kennedy was sold for $4.8m at an auction.
All these things were bought at low price and then sold high.
People can buy vintage cars that are cheap and after restoring they can sell them at a high price. This also applies for luxury cars like Aston Martin, Lamborghini’s etc.
In their case you buy them high and sell them higher!
Factors Affecting Prices and Investments
Factors that largely impact stocks and the decisions of investors include,
Availability of funds; if you have the means to invest in something, go for it. If not, bank loans are the best options for beginners who are looking to dabble in the world of stocks and shares.
Uncertainty: investments are all about risking and calculations. There is uncertainty whether a stock will remain profitable or not.
Economic Growth: a country’s growth is directly related to its economic growth.
High Growth Rate: a high growth rate means the company/ stock/ business is very profitable. This directly raises the stock value.
Trends: trends play a big role in markets. A stock that is moving up gains momentum this increases its value hence stocks become expensive.
Things you can Buy Low and Sell High at Smaller Scale
For people looking to invest at a smaller scale, the options are limitless.
In this world we live in today almost anything can be sold with a good profit if you are clever about it.
Asians are big on gold and silver. We all know how gold prices fluctuate. Many people have made heavy money buying gold at low and selling at higher price later on,
Social media apps have come a long way. Facebook, Instagram, Etsy, OLX, Daraz, and AliExpress are all a platform that an entrepreneur can use.
Sellers and buyers can take advantage of all these apps.
You can buy goods/ products at cheap and then individually sell them at a high price. All the big departmental stores like Aarong and CSD do this.
For example, you post home items that you want to sell, a virtual yard sale per set. You put a lamp for sale that originally was 10$. The starting price you set is 30$. Once you get a buyer you bargain about and sell it for 20$. That’s 10$ profit right there!
AliExpress is another amazing app where you can buy almost everything you can think of. From hair accessories to camping tents and container homes!
The bonus is that all these things are literally a quarter of the actual price!
Let’s say you buy 10 pairs of pants. Each pair of pants sells for 15$. You invest 150$ and the shipping cost around 20$. Your total is 170$. Now comes the fun part, you sell each pair of pants for 25$ on Daraz and make 250$. Your profit is 80$.
Congratulations you have successfully applied the ‘buy low sell high strategy’.
All these things come under Retail Arbitrage.
What is Retail Arbitrage?
The buying of products from your local or international retail stores at cheap and selling these products at a high price in the market for a profit.
It can include;
Asians are big on jewelry. One thing you can bet on selling is jewelry. Rings, necklaces, headbands, etc.
You can easily buy these from your local bazaars very cheaply and sell them high on Instagram or Facebook.
For the past 5 years phone industry has been booming.
It has reached an all-time high. Phones from big companies like Samsung, Oppo, Vivo, and Apple are selling like hotcakes. So are the accessories related to them.
Other products that are proving quite profitable include activewear, pet toys and pet care supplies, clothes, fitness trackers, and beauty products.
Some Large Sale Examples of Buy Low Sell High Tactics
If we go 3-4 years back, there was no Uber or Careem. Local yellow taxis that were available only in large cities drove.
It was only in recent years that Careem and Uber started working in Asian and Mid-Eastern countries.
Their stocks shot to the roof and soon Careem was bought by Uber for a whopping $3.1 billion. People who invested in the cab company initially made huge profits.
Another great example is the delivery app Foodpanda. The company is a baby compared to other major giants, but it has been so successful that its Value has seen some serious growth.
Below we have attached a stock chart for the Tech giant Samsung Electronics Co Ltd. The chart shows yearly growth from 2012 to 2018.
The chart shows that around 2013 the stock’s price was around 15000 S. Korean Won. But in 2018 it reached its peak at about 46,150KRW.
People who bought the stocks around 2016 for a low price saw a huge increase in profit in 2018.
This stock graph plots the rise and fall of stocks for Tesla.
It’s evident from the graph how it started from zero and reached its highest in just 17 years. It the definition of buy low sell high!
The company’s net income is $721 million as of 2020 and total assets around $52 billion.
We’ll wrap our article here.
Hopefully you understood the “Buy Low Sell High” strategy and can apply it on whatever venture you are planning.
The bottom line is business world is a fickle world. You need guts and brains to be the master of your own game!