Investment Philosophy

In case you haven’t figured it out by the title of the site, our investment philosophy is very simple:

Buy high, sell higher.

Most people try to buy low and sell high, which is great, if you can do it. Unfortunately, it’s almost impossible to do in practice, because how do you know if something is low?

Put another way, if someone dropped a piano from a tenth floor window, would you try to catch it?

That’s what buy low, sell high is; trying to guess at a bottom is very risky.

The easier way is to buy when a stock ends a period of consolidation and makes a new high. Technical analysts say that there is no overhead resistance, so there is nothing stopping a stock from continuing to increase.

Common sense tells us that if the stock is at a new high, everyone who owns it owns it at a profit, and is therefore under no pressure to sell to “get back even”.

So the plan is this: buy a stock that is in an uptrend, and that is making a new high for the first time after a period of consolidation.

Second, fundamental analysis is also important, which means you should understand something about the company and it’s industry. A nice looking chart of a horseshoe manufacturer might have been a good investment 100 years ago; it probably doesn’t have much upside today.

Finally, I like to buy stocks before I’m reading about them on the front page of the newspaper, what Jim Dines of The Dines Letter calls “mass psychology”. Bull markets are invisible when they start, but at a peak everyone, including your barber, is telling you about it; that’s when it’s time to sell.

If the chart, fundamentals, and mass psychology are all in line, it’s probably a good investment.