However, it amazes me how such a simple universal adage such as buy low and sell high is so misunderstood and so easily set aside by euphoria and panic after a crisis or market boom, in this case COVID-19.
In chapter 6 (Focus on Investing, Not on Consuming) of my new book "My Father's Influence: TAP into Your Potential: How to Think, Act and Practice Like an Entrepreneur" to be published by Business Expert Press, I discuss this simple but proven adage and how one can taken advantage of it to grow their 401K portfolios during a crisis. .
The simple formula is Do Not Panic during a market crash and Do Not Get Euphoric during a market boom. You should always have some money set aside in safer investments (diversify your portfolio) while your other riskier investments (depending on how close you are to retirement) are doing their thing during a normal market. Most people, contrary to the adage, get euphoric when the market is high and buy in and panic when the market is low and get out.
My strategy requires patience. When I see the market is high, I sell some of those mutual funds and increase my reserve in the safer investments. When I see the market is low, I take some of the those funds from the safer investments and purchase some mutual funds in riskier investments that have a history of bouncing back, after a bit of research. That is how I handle a regular market.
However, this article is about how to make money during a crisis, not so much how to handle the more complex 'normal" market. If I see a particular stock drop significantly due to a crisis, not related to "normal" market inflection points, I buy low using the funds in my safe investment reserve to perform what the industry calls dollar cost averaging and I keep buying consistently into the mutual fund, at regular intervals during the crisis. I do not try to time the market losses or gains, but I buy in consistently. Historically the market is cyclical and odds are I will not only recover the losses incurred in my riskier investments but I will realize gains by shifting some funds from my safer investments to the mutual funds that have been most affected by the crisis. This requires some level of understanding of which mutual funds invest in those particular industries (say the air lines and cruise line industry during COVID).
This is a strategy that I have used successfully in times of crisis including COVID-19 where as of the writing of this article, my strategy of buying low has realized significant gains from Pre-COVID levels whereas if I had stayed the course, I would more then likely be in a position to just have recovered some of my losses or if I had sold low, I would have cemented my losses.
The preceding is my personal take and experiences and my attempt to explain how the buy low sell high adage works which I feel fully comfortable engaging in and should not be taken as financial advice. You should always consult with your financial advisor prior to engaging in investments of such type.
TAP into Your Potential...Think, Act and Practice Like an Entrepreneur.
