The Flaws in 'Buy Low, Sell High'

💡 Key Insight

Despite its intuitive appeal, the strategy of buying low and selling high underperforms a simple buy-and-hold approach. While it aims to reduce risk and capture gains opportunistically, it suffers from poor timing, missed returns, and nearly identical drawdowns.

📉 Why This Myth Persists

The 'buy low, sell high' mantra is deceptively comforting. It makes investors feel like they’re exercising control and taking advantage of market swings. But emotionally gratifying doesn’t mean financially sound. As the book shows, the supposed strategy often results in lower returns and similar or worse risk.

📊 What the Data Shows

Over a 29-year period (1982–2010), the S&P 500 returned an average annualized gain of 9.09%. By contrast, a 'buy after 10% drop / sell after 20% rally' strategy returned just 4.69% annually. Surprisingly, both strategies had similar drawdowns—over 50%. Even after testing 36 different parameter variations, none outperformed buy-and-hold.

🧠 Behavioral Trap

The strategy feels good because it lets investors believe they’re 'locking in gains.' But as the book highlights, it often forces investors to re-buy stocks at higher prices or sit out market rallies entirely. It also performs poorly in bear markets, where buying back lower rarely works in your favor.

✅ Better Approach

Instead of trying to buy weakness and sell strength, the book recommends the opposite: buying strength and selling weakness. Trend-following strategies that buy stocks near 12-month highs have outperformed, as they capitalize on momentum rather than hope.