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The Principle Of Buying When Others Are Selling

Data from matrotrends.com | Analysis by Rise

The image above is the historical stock price movement of Apple in the last 5 years adjusted for all stock splits. If you draw a line from the origin to the current position (as we’ve done), you will get a straight line moving up from the origin. 

That’s what we all want; an asset whose price is always going up. But does that exist? A look at historical prices of different assets shows that this doesn’t exist. All assets increase and decrease in price depending on prevailing circumstances. Yet, this straight line underpins the principle of buying when others are selling.

What we see in that graph is a perfect line with an upward trajectory, however, you can see from the highs and lows that reality is not often a straight line.

Let’s take a closer look at one of the lows. In September 2018 the Apple share price peaked at $55.6 and started declining. It never reached that peak again until a year later in September 2019. 

Data from matrotrends.com | Analysis by Rise

Yet, experts say you should keep on buying when others are selling. For the uninitiated, you know others are selling when the price of an asset is declining. It means more people are ready to drop that asset than people are willing to buy it. However, seeing your assets (portfolio) value decline every day for a year is not fun.

Let’s run through some numbers.

Assuming you bought one unit of Apple Stock every day between September 2018 and September 2019. What will your finances look like at the end of the period?

There were 272 trading days in the time under consideration. If you bought a unit of the stock every day, it means you will own 272 units of Apple Stock at the end of this period. Despite the ups and downs, nothing particularly changed about the share price. It only fully recovered and if you draw a line from the beginning of the period (September 2018) to the end of it (September 2019), you will obtain a perfect horizontal line (see the red line from the image above)

However, because you were buying all along, especially when others were selling, your 272 units of stock will be worth $15,100 even though it cost you $13,000 to buy them. A whopping 16% return during a market downturn.

Where did the 16% return come from?

Data from matrotrends.com | Analysis by Rise

It came from doing the difficult thing – buying when others were selling. In the case of Apple Stock, it recovered its price and grew, the units you bought at the lower price made up and produced a return on your investment up to 16%.

Please note that while we have chosen to use a single stock as an example, the principle is largely applicable to most stocks.

Also, note that not all Stocks recover. Some decline for as long as 5 years before they can get back to their previous all-time-high. For example, Microsoft had a five-year decline between 2000 and 2015.

The million-dollar question is how do you know which stock will recover? The truth is that it’s very difficult to know. Many have burnt their hands buying when others were selling because they bet on the wrong stock. That’s why we encourage you to contract that part of the job to us. We have a team of dedicated experts whose responsibility is to ensure that only quality assets are in your portfolio; all assets go through a rigorous selection process that we recounted here.

When you choose a stock plan with Rise for instance and you see the value declining, you should be happy because you get the chance to buy that asset for a lower price than you did yesterday. And when you combine buying when others are selling and leaving the job of choosing what you buy to us, you are poised for rewarding long-term returns.

So yes, buy when others are selling because it balances out in the end. On our part, we invest your funds into a portfolio of expertly selected stocks based on their long-term growth opportunities and quality earnings.  For instance, our Eurobond portfolio returns 10% on average, a return higher than the industry average and our Real Estate portfolio has also consistently produced a return greater than 10%. The same goes for our stock portfolio which has performed better than the S&P 500 year to date. 

Buying stocks is equal parts knowledge and temperament. By yourself, you will make a lot of spur of the moment decisions so your long-term outcome will be unsatisfactory. But if you stick with Rise, we have a certain level of objectivity and experience, and the right disposition to make your outcomes better. 

Visit rise.capital for access to the best stocks.

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