— “Ahead of the Street” Column, by Mitchell Clark, B. Comm.
Buying low and selling high in the stock market is an extremely difficult investment strategy to accomplish. It takes patience, but more so it takes a vision to allow a company to build its business over time. It also takes courage on the part of the investor to stick with a company while other opportunities pass by.
In secondary markets like stocks, capital moves extremely quickly to the best opportunity for investment at any given time. Before this, however, some of the biggest money is made by private equity investors who invest in a company before it goes public. When that company lists its shares for trading, private equity investors usually are up multiple times, because they got in early and stuck with the business until it gained the critical mass necessary to complete an initial public offering. This is the epitome of the buy-low-and-sell-high investment strategy.
For an individual investor, being a private equity investor is quite difficult because of the size of the capital required. Accordingly, most people participate in the secondary market — the stock market; buying and selling equity in companies at their discretion.
Buying low and selling high in the equity speculation business is similar to being a private equity investor who wants to invest in a company before it goes public. You have to consider a company’s current financial state, its prospects for growth and, most importantly, the sentiment in the marketplace for this business to get recognized by the investing marketplace.
This is why I find fundamental analysis so useful in identifying good investment opportunities on which to speculate. Using an investment theme with solid fundamentals is a great way to help narrow down which stocks to consider. For example, agribusiness in China is an extremely attractive investment theme to consider right now. So, as an investor, you generate lists of those companies related to agribusiness in China and you peruse that landscape for opportunities that are reasonably valued and offer the best growth prospects.
In a sense, the buy-low-and-sell-high investment strategy is extremely simple. The difficulty is finding the right opportunity at the right time and having the patience to wait for the right opportunity while other stocks move. While this investment strategy may not yield returns as quickly as buying high and selling higher, the payoff is almost always greater.