I met up with an old primary friend recently and got to know by chance that he has been investing for quite some time. He was sharing with me the challenges he has been facing when it comes to investing and I immediately picked something up which with his permission, to share with the bigger community here.
He was under the impression that to be a great investor, it is about being able to find stocks that have been beaten down and are at their bottom. (Either at their all time lows or 52-week lows.) Sometimes, it is also about finding the most obscure stock or unheard ones which he considers hidden treasures at the deep ends of the market. By doing so, he is being greedy while everyone is fearful. To be contrarian by buying when everyone wants to sell…
Given this train of thought, that was why it is not surprising that he bought into companies like Singpost and Singtel at the end of 2018 (which used to be a 5-year low back then) and some other penny stocks.
The thing is that in the stock markets, things happen for a reason. If a stock has remained at the bottom or made lower lows over a long period of time, it means there is no interest or sustained new buyers. Investing is not a game of treasure hunting to look for something that no one else can find.
Investing, if anything, is a game of buying something now, so that in the future, there are more people like yourself who are willing to pay an even higher price than you paid for it now. The stocks in your hands are only as valuable as the next person who is willing to pay for it.
You would want to pay a good (low) price, for a great stock that everyone wants in the future. Some investors have missed the second part of this sentence which resulted in many regretful purchases.
While many stocks may be at or near their 52-week lows, not every one is a worthwhile purchase. Instead of merely looking for the bottom, it is more important to be able to identify good performing stocks which I will share in a future article.