We Don't Buy Low, and We Don't Sell High
Buy low, sell high. Four words about investing that everyone knows and almost nobody can define. It has the ring of hard-won wisdom, which is exactly what makes it dangerous. We were listening to a podcast recently and it helped put words to something we have worked to instill in clients for forty years.
What are we buying? And why are we selling? A home, for example. Most people are not able to wait to buy a home when prices are low. Everyone needs a place to live. Whether market prices cooperate or not isn’t up to us. We buy when we can. Nor are most people able to sell when prices are high. We need to move for a job or additional space for a growing family. We sell when we need to.
On to the market and your investment portfolio. Some portfolios are built through dollar cost averaging in an employer sponsored plan. Others are built with the savings once we have paid for all the needs and wants in our lives. Still, others are built when we receive an inheritance. The inheritance is the only one that may tempt us to wait for “low,” because all the money arrives at once.
Start with the back half, because it is the more dangerous half. "Sell high" assumes selling is the point, the score you post at the end. But think about what you are actually saving for. Your daughter's tuition. A new roof. Thirty years of not going to work. None of those things care about the market. They are your life, and the money is there to fund it. And if you have quietly told yourself that the sale is the reward, every year you don't sell feels like a year you missed. What are we going to do after we “sell high”? If we don't need the money, selling only leaves us with another timing decision: when do we buy again?
Now the front half. Low relative to what? Low compared to last month? Low compared to the peak? The bottom? Low compared to some number you carry around in your head from a headline you read in 2022. There is no reading on the dashboard that says LOW. You only find out a price was low a few years later, once it stopped being low. In the moment, everything cheap looks broken and everything expensive looks obvious. What "buy low" turns into, in practice, is “wait for low.” And waiting is the expensive part.
So here is how we think about it instead.
Buy when you can. Not when the market is agreeable. When the money shows up. Every payroll, every good month, every distribution, every time you have a little more than your household needs. How much you can commit is a fact you control. What the market does with it that week is not. Only one of those two things deserves your attention.
Sell when you need to. Tuition is due. The furnace died. You retired and this is your cash flow now. Those are reasons. So is a plan: we rebalance, we harvest losses, we sequence withdrawals so the tax bill behaves. That is still selling, but it is deliberate. Sell because you need the money, not because you think the market is high.
Which brings us to the war chest. The reason forced selling does real damage is not that prices fell. It is that you didn't pick the date, the market picked it for you, and it often picks a bad one. Cash reserves, short bonds, an unused line of credit, and a business that can carry itself through a slow year all do the same job. They keep the calendar of your sales in your hands. They do not make losses disappear and we would never tell you otherwise. What they do is turn "I have to sell" into "I choose to sell," and over a thirty year retirement that difference compounds more than most people expect.
Notice what this framing does to the scoreboard. “Buy low, sell high” grades you against a price, and that price is set by strangers. “Buy when you can, sell when you need to” grades you against two questions you can actually answer: Did I put money in when I had it? Did I avoid having to take money out when I didn’t want to?
Those are the questions we ask. They are not clever, and they will never fit on a coffee mug. But they are answerable, they are yours, and they point at the thing the money was for in the first place.
We Enable Dreams
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
Past performance is no guarantee of future results.