Why do investors suggest in purchasing select stocks after they have reached an all-time high as a criterium?

Question

Does this not defeat the buy low, sell high? If a stock has just reached an all-time high, really how much further can it continue to climb in a short to mid amount length of time?

I assume there is some type of research to back this investing strategy? Does anyone know of where to find more information or a website specifying the statistical advantages and historicalness of investing this way as the years have passed?

Also, I just wonder if Mr. Buffett himself uses the all-time high criterium when basing his investment decisions?

Answer 1

I agree with you 100%. When it comes to products and services we are the world's greatest shoppers. Waiting until they go on sale. Trying to buy at the cheapest price possible. But when it comes to stocks, everybody wants to know what the "hot" stock is. They want to buy Google or Apple or gold AFTER they've had a great run. AFTER their price is high. Just the opposite of what they should be doing. The best time to buy a stock is when it's out of favor, when everybody else is selling. I bought Boeing years ago when the airlins were in terrible shape when the plane manufacturers were in the dump. When Boeing was $26 a share. It went up to over $100 when I should have sold it, when everybody was buying. But I'm a long term investor and wasn't interested in paying the tax on it. But I'm still way ahead.

Answer 2

Some investors like to "momentum" invest.  In other words, if a  stock is going up, it will probably continue to go up, until something negative happens.  Sometimes you can make a lot of money this way.  If you had bought Google after it moved from $100 to $200, it was still on it's way up to over $600 per share.

You might want to create a practice portfolio at http://www.top10traders.com - it's free - and buy some momentum stocks, like AAPL, GOOG, RIMM, or ISRG, and see how you do.

Answer 3

Stocks usually find "resistance" as they approach their 52 week high (meaning they tend to plateau before breaking that level).  When the finally do set a new high, they usually keep going.  It is an indication that the company is doing something right,  and the momentum carries on for quite a while.

I don't know of any websites that talk about this, but it is talked about in the book "Your Next Great Stock" by Jack Hough (which I highly recommend.  He provides historical numbers as well as a stock screen "recipe" to try to take advantage of the trend.

Answer 4

That criteria is a recipe for disaster. Buy low, and then sell high. If something has quadrupled in 2 years and is at all time highs, the last thing you want to be is buying. That is amateur. Short-sell at all time highs, buy lows. Buy airlines now. Sell commodities now. It's real simple, but people are sheep and sheep get slaughtered. Don't be a sheep, and you won't get slaughtered. Who cares what Buffett does... He is not trying to make money, he has enough money an he is trying to preserve the money.