Buy Low & Sell High: Why Is It So Difficult?

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Oct 06, 2024

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“Be fearful when others are greedy and greedy when others are fearful.”

Buffett’s famous quote above is something which most of us are familiar with. To my surprise, I wasn’t able to find a quote where Buffett directly says “Buy Low, Sell High” — but that’s the essence of what this quote means.

So if it’s such simple advice, why is it so difficult for so many to follow?

This article aims to break down and explain why it is so difficult to “Buy Low, Sell High” — and unpack the underlying drivers behind this phenomenon. By the end of this article, you should be able to understand it better and change how you approach markets to become a better value investor.

The Fallacy of “Lows” and “Highs” In Share Price Charts

To begin, I would like to address the fallacy of “lows” and “highs” in stock price charts.

Take a look at this chart of INTC’s share price above. At first glance, it seems like you should have sold it 5 years ago, right?

But what if we narrowed down the same chart to just the part between Sept ‘22 - Dec ‘23? What would the chart look like then?

Hmm. Kinda changes the perspective, right?

Now obviously I am cherry picking the timeframe to suit my purposes. Yet for more than an entire year, most investors would have considered INTC a Buy prior to Dec ‘23, and Sept ‘22 to be a bottom. One year is a god awful long time to be experiencing FOMO, right?

Now let’s take things one step further. If I sliced up that same chart in the completely biased manner below, it might even imply that INTC’s upside can only “revert to the mean”. To the moon, baby!

Now ask yourself this. When do you think most investors would be piling into INTC during this cherry picked period? In all likelihood, the closer you get to the end, the more investors would be buying into INTC and cheerleading it. Right? And yet hindsight would tell us that this is exactly the wrong thing to do.

This example emphasizes the fallacies of timing ‘highs’ and ‘lows’ in share price charts. The reality is that there is no such thing as a ‘top’ or a ‘bottom’1. What constitutes a ‘top’ and a ‘bottom’ really depends on what your reference point is.

What do I mean by ‘reference point’? The reference point is today’s share price, because that’s what we benchmark a stock’s historical performance against. If the share price today is higher than it was at some point in the past, we’d interpret the latter as a ‘bottom’. If the share price was higher, we’d interpret that same point as a ‘top’.

The problem with doing this is that the reference point is a moving goalpost — it changes literally everyday! As the charts above show, you can pretty much cherry pick whenever your reference point is to arrive at a completely different conclusion about INTC’s historical performance. E.g. if the reference point is today, then INTC would be underperforming. But if the reference point was Dec ‘23, then it would be outperforming. Right?

This isn’t a problem until we try and forecast the share price trajectory into the future. Let’s try and illustrate what I mean. This time, let’s extrapolate INTC’s share price trajectory to some imaginary point in the future. Just for fun, we shall use Jan 2026 as our reference point.

If INTC’s share price chart in Jan 2026 looked like the one below, we would consider it a Buy today. Right?

But if it looked like the one below, then we’d consider it a Sell today instead. Right?

The problem with respect to reference points in the future is that we don’t know what the reference point will be. If I asked how you’d go about forecasting INTC’s share price in Jan 2026 with 100% certainty, you’d probably give me a deer in headlights look. It’s one thing to look back with 20/20 hindsight — it’s another thing to look into the future with 0/20 hindsight.

And yet that’s the reference point which your performance will be based on when Jan 2026 rolls around. Which is kinda a problem, because as the charts above show, it can really go either way.

Pairing it with the earlier insight, this also implies that you’d be unable to time a ‘top’ or a ‘bottom’ in INTC's stock. Why? Because neither of them exist yet! They’d only exist in Jan 2026; and change in Feb 2026; and change again in Jan 2027! Any notion of ‘top’ or ‘bottom’ in INTC’s share price only exists on hindsight.

This is before we even go into Hard Mode. What about all the macro factors? Will there be a recession by Jan 2026? Will there be a Great War? Will there be some yet unknown new risk (e.g. AI)? How might such scenarios impact INTC’s share price, and change the reference point in Jan 2026? Or Feb 2026? Or Jan 2027 and beyond?

This demonstrates how you can’t exactly time ‘tops’ and ‘bottoms’ just by gawking at a stock price chart — since they only exist on hindsight, and are based on the latest share price. Which is a moving goalpost which changes literally everyday.

This completely dismantles the concept of looking for ‘tops’ or ‘bottoms’ amidst share price trajectory. It also explains why investors have so much difficulty with ‘buying low and selling high’, i.e. timing market ‘tops’ and ‘bottoms’. It’s because the entire notion of it is nonsense.

What Buffett Actually Means By “Buy Low, Sell High”

And yet, clearly Buffett implies in his quote above that one should ‘Buy Low, Sell High’. So how do we square this circle?

Buffett isn’t referring to timing ‘tops’ and ‘bottoms’ the way most people think about it. When most people talk about buying low and selling high, they’re talking about market timing or identifying share price trajectory. In contrast, Buffett is referring to buying assets when they are undervalued, and selling them when they are overvalued. In other words, buying a dollar for 50 cents and selling for $1.50.

Notice the underlying implication of this. It means that Buffett isn’t really trying to get the best price from anything — i.e. timing ‘tops’ and ‘bottoms’. Instead, he is trying to get a good enough price — undervalued when buying, overvalued when selling. He is not trying to be No. 1 by timing ‘tops’ and ‘bottoms’ — he is simply trying to be above-average.

A similar sentiment is echoed in Benjamin Graham’s notion of an “adequate return” in his famous quote below:

“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.” — Benjamin Graham

Thus when Buffett talks about ‘buying low and selling high’, his context is not share price trajectory, but rather the stock’s fair value. He really couldn’t care less about which particular point on the squiggly line he buys in or sells out of. This is markedly different from how most people interpret ‘Buy Low, Sell High’.

A subsequent implication of this interpretation of ‘Buy Low, Sell High’ is that Buffett isn’t really trying to compete with others whenever he makes an investment decision. Of course he’s the Oracle of Omaha — but he’s not really trying to be the Oracle of Omaha, nor does he care about defending his title. What he’s entirely focused on is buying 50 cents on the dollar, irrespective of what others think of him. And he simply trusts that by following the process (i.e. value investing), he will eventually become No. 1 someday.

Again, and it bears repeating, this means that ‘Buy Low, Sell High’ doesn’t refer to the market timing of share price trajectory. Rather, it is used in the context of buying undervalued assets and selling overvalued assets. The interpretation of the same quote could not be any more different.

This explains why most people have “so much difficulty” with buying low and selling high. It’s because they’re completely misinterpreting what it actually means — it does not mean to time ‘tops’ and ‘bottoms’ in markets. Rather, it simply means to have the guts to buy when everyone else is selling, and the logical conviction to sell when everyone else is buying. In other words:

“Be fearful when others are greedy and greedy when others are fearful.”

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Disclaimer: This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein or of any of the authors. To the best of the authors’ abilities and beliefs, all information contained herein is accurate and reliable. The authors may hold or be short any shares or derivative positions in any company discussed in this document at any time, and may benefit from any change in the valuation of any other companies, securities, or commodities discussed in this document. The content of this document is not intended to constitute individual investment advice, and are merely the personal views of the author which may be subject to change without notice. This is not a recommendation to buy or sell stocks, and readers are advised to consult with their financial advisor before taking any action pertaining to the contents of this document. The information contained in this document may include, or incorporate by reference, forward-looking statements, which would include any statements that are not statements of historical fact. Any or all forward-looking assumptions, expectations, projections, intentions or beliefs about future events may turn out to be wrong. These forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond the authors’ control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all securities, companies, and commodities discussed in this document and develop a stand-alone judgment of the relevant markets prior to making any investment decision.

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outside of very short-term technical contexts