Don’t Buy Stocks On a Run Up
Over the last few years I’ve learned… don’t buy stocks on a run up.
But doesn’t it make sense to buy a stock while it’s going up in value?
People tend to buy high sell low. If you want to make money, this is the exact opposite of what you should do.
Sounds simple enough, just don’t sell when the stock goes down.
Why do investors fall for this, emotions. Investing is mostly a battle with your own emotions.
When we see a stock sky rocketing, we don’t want to miss out on the huge gains. What if it keeps going up? What if it goes up 100% I would have lost out, I need to buy now.
Not having the patience to wait out the volatility can cost you money.
I like to think of it this way…
Most stocks are going up about 6% per year on average. So if a stock I watch or own has gone up 10% in one day, I probably shouldn’t buy it that day. Most likely the stock will correct it’s self to make normal returns.
Real Life Example
Today was a good example, I was fighting my emotions all day. I’ve been sitting on some cash, trying to decide which stock to buy.
I’ve been thinking of buying more Canopy Growth. Last night a news release came out about Canopy Growth expanding to 2 million sq ft of grow space. (Increase Tweed Farms to 1 million sq ft) Along with that was the news from the Ontario Government laying out their plans for selling etc.
So first thing this morning, Canopy Growth jumped up 30 cents. Damn it I missed my chance to buy it while it is still low.
Now while watching the price, I’m wondering just how big of a run this will be. Will it be like the November spike up to 17? Should I buy now and the stock will be at $12 in a month.
Luckily I knew better. I held off buying just because I worried I might miss out. I did put an order in to buy some shares at $9.10 but the stock never went back that low, very close but the order didn’t get filled.
There is another side to this. Even though I’m glad I didn’t buy today at the $9.40 peak, in 5-10 years time, does 25-40 cents really make that much difference.
If I believe the stock will eventually go up to 20 or 30 I should have just bought it.
To me the biggest risk of losing money is on the initial purchase. If you were to buy at the peak of the run up and the stock drops, you may panic sell. I would rather buy while the stock is somewhat stable. At least psychologically it’s a little easier.
I’m also not a day trader, I wouldn’t buy today and try to sell for a few cents profit. Your timing has to be absolutely perfect.
If you want a good chance of making money, don’t buy stocks on a run up. You are mostly likely at your most vulnerable, physiological speaking, letting your emotions get the best of you.
Having a little patience can mean saving me some money.