Catching a falling knife

Reflections on catchy sayings: buy low & sell high

This is a famous quote often attributed to financially successful traders, but is it really good advice or is it actually foolish or at worst dangerous to your financial health?
It seems to me that it’s like catching a falling knife. If you think about it, in the real world when the price of an investment is falling or when something is selling near or at an all time low... how wise it it to buy? Buy low and sell high sounds simple and more important, easy. But do you or I have the “intestinal fortitude” or “the guts” to buy at the low?

Warren Buffet on buy low and sell high

A quote frequently attributed to Buffet was buy low and sell high. I am unsure he ever said that phrase. He did however say many times buy low and sell never. As a dividend investor he liked to buy companies with good earnings and use his influence on the board of directors to vote for increasing the dividend. He kept these sticks because they appreciated and because they paid good dividends.

Let’s look at an interview of one of America’s most popular and respected billionaires; Warren Buffet how he got rich. He was asked if he believed in “buy low and sell high”.

Here are a few of his answers:

First one:

“Most people get interested in stocks when everyone else is interested and the price is high. The best time to get interested is when no one else is interested and the price is low”.

“Look for good companies, with low prices and buy all you can afford, using money you can afford to lose.”

Second one:

“You can't buy what is popular and do well."

Surely we all can see the wisdom in not buying when things are near their all time highs and waiting for the pullback is taught in most stock and asset trading classes.
This makes sense, when Bitcoin was above 16000 it was very popular, but also near its all time high. Steem was also popular above 4$ and extremely popular at $8.00.

Third one:

“Investors should try to be fearful when others are greedy and greedy only when others are fearful."

Oddly enough Bitcoin and many other cryptocurrencies have more buyers at their all time highs, then at their lows.

Conclusion:
I think the secret is finding good companies, when their not popular and their price is low. I think his phrase “Be greedy when others are fearful and fearful when others are greedy” ... is insightful. Bitcoin had more investors at a price of 60,000 USD then at it’s recent price of 36,000.00 USD. That’s human behavior, but hopefully you can see how faulty it is, and financially harmful. My advice is a carbon copy of Warren Buffets advice. I think buy low in crypto means buy on the dip. And I try to buy on the dip with all cash I can afford to lose at the time. Even if I buy 1/10 of a bitcoin at a good price I am still ahead. I think you need to be patient and wait for the dips. It’s easy to buy at the high due to the fear of missing out “FOMO” this is a real force in the trading world, which we all must keep in check.

Last Quote

One of Buffets quotes I keep in mind when I am dealing with FOMO is

“The stock market is very efficient at transferring wealth from the inpatient to the patient”

I don’t know about you, but I think this quote was about FOMO and quote was made before the term FOMO was invented LOL 😂

✍️Penned by my hand.

@shortsegments

Shortsegments is a writer focused on cryptocurrency, the blockchain, non-fungible digital tokens or NFTs, and decentralized finance.