Buy Pessimism and Sell Optimism

Oct 2002

There are never more sellers than buyers, and vice versa.  Every share of stock sold is bought.  From an investor’s standpoint, the important issue is what price makes the buying and selling equalize.  In general, apart from movements in corporate earnings (which seem downright glacial compared to the volatility of stock prices), stocks change hands at relatively lower prices when investors are pessimistic and at relatively higher prices when investors are optimistic.  So, if we want to buy low and sell high, we will typically find ourselves buying in times of pessimism and selling in times of optimism.  Investors who follow TV gurus and decide to temporarily hold cash when most people are worried (not wanting to invest until the economic, investment or geopolitical outlooks improve) invariably find themselves buying higher, not lower.  Think about investing this way:

   Question:  When is the best time to buy?   Answer:  When prices are their lowest.

   Question:  When are prices their lowest?   Answer:  At the point of maximum pessimism.