Ideally, you buy stock at its lowest price and sell at its highest. Practically speaking, you do the best you can between these unpredictable extremes.
For, as you will see, the low does not become apparent until your stock begins to rise above it, the high is not established until your stock begins to drop away. Although all of us could wish it otherwise, no bells, no flashing lights, no 21-gun salutes ever mark the bottom or the top.
Timing your stock transactions, therefore, is perhaps the most delicate element of investment, the decision requiring the keenest judgment and the surest touch. Experience helps, although success is not necessarily proportional to it. Veterans of the market, men who have been buying and selling for 30 or 40 years, sometimes seem to have a sixth sense about turning points, up or down, for individual stocks, or industrial groups, or the market as a whole. On what seems to be no discernible evidence, they will mutter, "Well, I think the market's going to fall out of bed," and, sure enough, within a week there is a nine or 10-point reaction. Yet newcomers may also acquire this skill with surprising speed.
Since judgment is a subjective quality, there are no firm rules for applying it. But there are generalities that can begin to define objectives and delimit areas of choice. And there are a number of techniques that attempt, more or less successfully, to better the average results obtained from trying to calculate timing arbitrarily.
Most professionals will tell you, right off, not to try for the extremes. The surest way to miss tops or bottoms is to wait for that last extra point of gain, that one more point of drop. Usually, an investor is considered to have done very well if he buys or sells within five points of the limit on a moderate-to-wide swing, within a point or two over a narrow range.
Another way of looking at the ideal objective is to reverse it: try to avoid selling at the low or buying at the top. This may seem to be superfluous advice, but both have happened many times when emotion entered heavily into judgment. Buying near or at the top is a temptation when a stock has been rising swiftly and steadily and the investor is eager to get aboard. The top, after all, is only relative. New tops may be within reach which will make the current one seem a reasonable buying level. Selling near or at a low is tempting when a stock has slid downward and the holder has become disenchanted with it. The impulse is to sell out, take the loss, avoid further trouble, and be well rid of the dog.
The correctness of these decisions cannot be judged in the abstract. They depend, first, on your objectives and on how closely or satisfactorily you have realized them. And they depend on your analysis of the several dimensions of highness and lowness involved. A close study of the history of the stock market and individual stocks that have risen and fallen can be informative, but as always there is no magic bullet.