For a long time in the spring of 1961 I thought GE was a good buy; that it might go up. I questioned a number of brokers and investment bankers about GE. There was a distinct lack of enthusiasm. Since these are the buyers and these are the people who recommend that customers buy the stock, it was evident to me that the demand was not there. It might change very quickly, but until it did I determined to buy other stocks.
It is important to emphasize this point once again: The price of a stock is the direct result of how much of a stock is offered for sale and what the demand is. We will return later to this point with a striking example.
The next most important piece of advice is that you should buy a stock which is moving up, not one which might move up or one which is moving down and looks as though it might be a bargain. You cannot hope to buy at the bottom and sell at the top.
If you try to buy at the bottom you have no assurance that the decline has stopped; and if you try to sell at the top you cannot be certain the rise will not continue. Buy just after a stock has demonstrated its willingness to rise for a few weeks, and sell after about two weeks of decline.
The most foolish piece of philosophizing that an investor can engage in is to say to himself, "I don't need to worry about the declining trend in the price of my stock. It will come back." Yes, it may, but when? And if you sold and simply held cash, you might for your cash get far more shares with which to ride the market up again.
At the beginning of 1960 Shell Oil was well over 40. By the summer it was down close to 30, and by the spring of 1961 it was close to 45. The downtrend was clear and the uptrend was just as clear. A person could have sold early in the decline and bought early in the rise. My wife, being as good an analyst as I, if not a little better through "intuition," hit the low point and advised buying at that point. A profit of 50 percent could have been realized in one year!
Next, follow the market and follow it every few days to determine trend. The closer you are to the market the better you are informed as to what to do. Do not worry about a decline of a few days or a sudden break in the market, no matter how sharp. Worry only about the trend of your stock and the trend of the market.
Too many investors get caught up in the "buy low, sell high" mentality. Yes, it's true that that is the main idea when investing, but don't be afraid to wait out a short downturn in a stock to see if it's a continuing trend or just a one-off incident. In investing, as in life itself moderation and consistency will perpetually pay off.