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March 9, 2020

“Buy low/sell high” is tough when you’re not sure which way is up

It’s probably the first adage one ever hears about investing which sounds easy enough. But in the rapidly shifting world of the markets, buying low and selling high isn’t nearly as easy as it appears.

When markets are down, investors believe that risk is elevated. In fact, risk is reduced since the ‘sold-down’ markets include a “fear premium” or discount -prices drop as events happen not after they occur, investors shouldn’t fear further losses once prices have hit bottom. Another adage, “If it’s in the press, it’s in the stock price”, rings true.

When the markets react, a move up or down factors in the past. Environments investors perceive as risky and volatile are less risky because prices have already dropped and will rise again as history reveals.

To execute, one needs knowledge and experience to recognize when a market move is just a temporary ‘blip’ that’s here today and gone tomorrow, versus when it could be the first reverberations of a trend for the months, possibly years ahead.

Knowing what to look for and having the skill and confidence to select opportune investments are two different things. Younger generation investors may be unsure, but those who have gone through the tough times and understand the paradox of investing, will be able to both pull the trigger and recognize danger signs.

Regardless, investing in the market requires a solid plan. All investors need to understand their end goals, the risks they can take and go from there with a team of active managers on their side.