A View on the "Buy Low, Sell High" Concept

As the old investment adage goes, "buy low and sell high." However, the act of buying low has a few complications which hasn't been easily resolved. One problem is knowing when a stock's price is actually at a low price or not. Most people confuse the absolute level of a stock price with being low. For example, if a stock is selling for $2 then a person might think that this is a great price to acquire the shares. However, if $2 is the new high for the price and one year ago the old low was $0.25 then $2 is actually very high.

One way that the New Low Observer (NLO) has managed to isolate whether a stock is at a low price is by waiting until the stock is within 20% of the new low. This approach isn't a cure for what ails the average investor. However, it does allow average market participants the opportunity to investigate quality companies for potential price increases. The new low of a stock automatically implies that value has been created especially if the company in question can survive as a going concern. This is counter to most information coming out of the Wall Street media machine. Typically, analysts on Wall Street recommend stocks that have risen far above the low before initiating coverage on a stock.

While there are 4336 individual stocks that can be bought on American stock exchanges, NLO has determined that there are basically only 383 companies that warrant your attention. The first group of companies are known as the Dividend Achievers (excel list of companies). These 283 companies are tracked by Mergent's based on their ability to increase their dividends every year for over 10 years in a row as a minimum requirement. It goes without saying that these companies pay some kind of dividend with yields that range from over 5% to less than 1%.

The second major group of companies tracked by NLO are the constituents of the Nasdaq 100. In our earlier forms as Dividend Inc. and Arti Invest, we believed that only Dividend Achievers were worth tracking since the dividend payment was verifiable regardless of "accounting" inconsistencies that are commonly found with "other" companies. The performance of this approach has been well documented and proven quite profitable.

However, the reality of the stock market dictates that we widen our perspective on companies that might afford significant opportunity with reduced risk. We, at NLO, decided that the Nasdaq 100 was the next obvious choice. After all, most mutual funds are bound to invest in these companies regardless of their unwillingness to pay dividend income. Additionally, companies in the Nasdaq 100 have solid reputations with higher prospects for growth over the long term.

One recent example of the benefit of tracking and research companies posted on NLO, as opposed to those from the Wall Street media machine, is Stericycle (SRCL). SRCL last appeared on our Nasdaq 100 watch list on October 30th. After being on our watchlist since the July 24th initiation of our website, SRCL has managed to climb from the low of $47.76 to the most recent high of $58. This is an increase of 18% from the July low and 21% from the October low and 11.54% from the breakout above our watch list range of being within 20% of the 52-week low.

NLO can be easily contrasted with the recent short-term buy recommendation placed on SRCL by Zack's Investment Research. In a tiny blurb issued today, Zack's Investment Research indicated that SRCL's stock had been in an oversold state based on the stochastics which indicated or implied that the stock was likely to go higher in the near term.

Unfortunately, offering up information about SRCL long after the stock has risen by at least 18% doesn't serve the small investor. After all, isn't the mantra "buy low, sell high?" It is strange to note that no analysts covering SRCL (in the following link) issued a buy recommendation on the stock after February 2004, even though there has been tremendous opportunities to buy in October 2008, February 2009, May 2009 and October 2009.

SRCL is only one of the companies that has been on the NLO Nasdaq 100 Watchlist that performed exceptionally well after getting off the list. Below are other Nasdaq 100 companies and their performance since getting within 20% of the new low:

It should be noted that the above companies are almost the entire list of companies that have appeared on the Nasdaq 100 Watch List. So far, this implies that quality Nasdaq companies could be investigated for speculative opportunities near the new low. Hopefully this approach can provide a reasonable approach to buying low with the prospect of selling higher. Follow along with us as we continue to investigate the speculative opportunities of the Nasdaq 100. -Touc

2 responses to “A View on the "Buy Low, Sell High" Concept

  1. thank you, great post!
    keep up the good work. i wonder if in your personal account you hold divi payers who do not have such a long record of dividends? ie CHG

  2. Dividend Inc. Team

    Greetings 40%,

    In my portfolio I do hold stocks that have not had a history of dividend increases. However, I consider those stocks as speculations and therefore adjust accordingly for the risk by have a small amount of money in the position.

    As stated before, most investment positions equal at least 25% of the portfolio. This means at most I have four stocks when 100% invested.

    Speculations usually equally 20% of the portfolio or less.

    In regards to CHG, there are other proven Dividend Achiever alternatives like PNY or NWN. For the same concentration in the natural gas industry, I would opt for those that have committed to a paying a dividend over an extended period of time. Having said that, CHG has proven that they don't carelessly increase their dividends. For this reason I will track the stock for when CHG hits a new low. I will definitely purchase it on the next low (hopefully lower.)

    Thanks for following our site. Wishing you many profitable returns for 2010.

    -Touc

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