Investing is so elementary and yet so few people make money doing it. The secret to successful investing is buying low and selling high and everyone seems to know this. The problem is that investors try to buy low, but at the same time would like everyone to agree with them. The combination of a cheery consensus and low prices is nonexistent. In other words, you cannot possibly buy something at a cheap price when everyone else agrees with you. As a result, investors buy high with the hope of selling higher and, unfortunately, they end up selling low.
The only recipe for investment success is to know what one is doing. This means treating stocks as pieces of businesses and only buying them when the price is right. The decision to purchase is only made when the business’s value exceeds its price. However, for that to happen, the stock usually has to be surrounded by a great deal of fear and pessimism. Without that, why would anyone want to sell something at a price below its value? As investors, it is our job to figure out whether the pessimism is justified or just an overreaction. The only way to do it is to know what we are doing and be able to think for ourselves to make that call.
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