Thursday, May 4, 2023

Buy At A Low, Sell At A High, Then Repeat

Buy low, sell high, make a profit, then repeat.

This is a given. However, a couple of people whom I know had given the recommendation of doing this to the counters which I had planned to hold for the long term.


The proposition is simple: let’s take Apple shares for example. Assuming my entry price was USD 100 way back and knowing the Federal Reserve would likely raise interest rates in 2022 (and cause markets to go down), I would sell it at, say, USD 160 at around end January 2022. Then, when the market goes down in June 2022, I would scoop them up at USD 140 and hold them, until the rally in August 2022, where I would sell them again at USD 170. Again, I will buy in at USD 140 sometime in November 2022. In all, I will have a realised gain of USD 90 [(160 – 100) + (170 – 140)] per share, instead of just holding it and gaining nothing without selling.


Even netting off dividends (close to USD 1 per share during the abovementioned period) and transaction costs (negligible if using discount brokerages and the number of shares is relatively large), you would still make around USD 80-ish per share. Translating that to just 100 Apple shares, that will be around USD 8,000-ish. That is a substantial injection of capital that can be deployed elsewhere.


It is a simple and convincing strategy, and a tempting one, too, for me as a buy-and-hold investor. Imagine with the profits, I can get additional dividend-generating counters to do the compounding effect further and grow the portfolio at a faster pace. How about giving this a shot?


Price Movements Are Unpredictable


The example above is cited on hindsight, and hindsight is 20/20. If the Apple shares were sold at USD 170 in August 2022, and if it continued to go up, you would have lost the opportunity to buy back. Even if it did go down, it could be at a new low (not USD 140 but perhaps USD 180), and you would be forking out an extra USD 10 for each share to re-enter (provided you still want to stay vested in Apple).


Price movements are unpredictable. Using technical analysis (which I am not good at) and/or “guestimate” by using current information and indicators (which I am below average at) does not guarantee a set price. Sometimes there may be circumstances and factors which are unexpected and/or overlooked, and they could throw a spanner in our forecasts.


And lastly, the adage about prices holds somewhat true, which is “high can go higher; low can go lower”.


What To Do With The Gains And Capital


The USD 8,000-ish gain stated in the example, plus the initial capital, would need to be deployed somewhere, else the purpose is defeated if this amount is sitting idly waiting for the next entry to Apple. This is why it is important to have a “wishlist” of securities to go into once additional funding is received; they could be new counters which you had recently prospected, or existing holdings that are suitable for entry, or maybe just split the amount into periodic investment into ETFs, or a combination of those mentioned. 


This is related to another concern: what if the capital from the sale of Apple is already vested, and Apple has reached the price for reentry? If you do not have available capital, in a way you are prevented from getting back in. It is an oxymoron to sell away the already vested capital to reinvest, especially if the newly vested securities are doing too well to be pulled out, or it is not due for withdrawal (e.g., parked in term treasuries and bonds).




Despite my concerns above, I am not critical to this idea; after all, ideas in the investing and trading world are worth knowing and learn from. It is just that whether you would want to adopt this into your own investment methodology.


May the Fourth be with you.



The Bedokian is vested in Apple.

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