Buying low and selling high sounds simple but let's take a closer look. Won't we have to time our trades to buy at the low and sell at the high? How will we know when a stock trades at a low or at a high? How does that square with the sage advice "don't try to time the market?"
Buying low and selling high is not an executable investment strategy. Buying great companies at a good price and holding them is a strategy that works. Take Wells Fargo Bank for example. The bank has more revenue and more profit than at any time since it was founded in 1929. It was forced to take government aide it did not want, tried to refuse and has already repaid. The stock once traded in the $70 range (split adjusted $31.00.) The company is paying a $.48 dividend and buying back its own shares. Buying Wells Fargo Bank at under $25 means you get a 2% dividend return on your money. Wells Fargo Bank is cheap! No wonder no one wants to buy! People are very leery about buying stocks cheap. After all, there is great uncertainty over the economy, the mortgage mess, regulations, political dysfunction, European bank solvency, the nation debt and deficit and much more.
People are afraid to buy now but when most or all of these issues are resolved people will feel much better. Of course Wells Fargo Bank won't be cheap then but that's OK. People like to buy when things are safe and prices are high. Well most people--Warren Buffett is buying Wells Fargo Bank stock now and he plans to sell--never.
