When friends ask what stock to buy, "but it's an all time high!"

2020년 6월 19일

A lot of my friends ask me what they should buy. I usually say something like, I like XYZ right now. They don't ask why. They don't try to understand the context or the time frame. They simply respond with, but it's at an all time high. Then I shake my head at how everyone wants a discount + outsized returns.

Quality is at a premium for a reason.

Not all of my preferred stocks are always at all time highs, but they are almost always proving to be market leaders in their sector OR they are positioned to be a major turnaround story.

I used to bottom fish a lot. Buying historical low points in stocks, like energy stocks in 2016 (when everyone thought oil bottomed) or even recently in March (it worked, but so did ALL bottom fishing opportunities, including the bankrupt stocks).

Buying stocks at a discount often comes with a lot of headache. I am not saying it does not work. You need the right market conditions for it. Simple as that. Valuation as a fundamental strategy has not worked very well in the last decade for a reason, FED cough cough.. FED.

Typically, the best bottom fishing opportunities are stocks that consolidate for a long time (trade in a tight range) and end up breaking a new 52 week high before making a huge run.

Strength > weakness when it comes to trend following and seeing faster returns.

Know your time frame.

Buying strong names on weakness is great, but I've spoken with legendary traders that ALL say the same thing. The best trades always happen right away, without turning back.

So let that sink in.