Buy Low, Sell High: How it Works in Real Life

They make it sound so easy, don't they?

Buy a stock low.  Wait a little bit.  Sell it after it goes up and then buy something else that is low and repeat the process until you have so much money you don't know what to do with it.

But the most oft repeated rule of good investing is a gross oversimplification that puts way, way too much pressure on the investor.  You are never - not in a million years - going to be able to time markets or purchases, at least not on a consistent basis.  Let's take an investment I own to see how it really works.

I like Google.  When I use a search engine, I prefer to use Google.  I like the Google doodles.  I'm used to the format and over the years I've appreciated the other services the company has developed to earn my loyalty.  Stuff like Google Docs, Google Chat, Images, Maps, Google Earth.  They offer a high quality product and make my life better on a daily basis.

But it's always been an expensive stock.  So the first time I bought it, I purchased 5 shares on November 16, 2007 for $627.75 a share.

Then the world fell apart in September of 2008.  Remember that?  I sat there watching the collapse in absolute and complete terror like every other sane person who owned financial assets.  But good investors learn not to freeze.  You have to take a deep breath, open your statement - the one where the entire portfolio has declined by 20 % or 30% in a matter of weeks - and you have to get very quiet and learn to think for yourself instead of like a sheep.

Is the world really going to come to an end?  No.  Assuming an absolute worst case scenario which companies will survive?  You sell your weakest companies, the ones that had been struggling before the downturn and you take that money and  reinvest it in the strongest parts of the economy.  Or at least that's what I try to do.

On October 7, 2008 I bought 5 more shares of Google at the half-price sale:  $355.05
I got a little braver and bought 25 shares on October 13, 2008 at $365.45 and then in a different account on October  17, 2008, 20 shares at $385.11.  After watching, learning, getting to really know Google over the next five years, I liked the direction they were taking and was pleased with their acquisitions.  On February 28, 2013 I added another 70 shares at $805.10.

Today the stock closed at $1,192.10 and I'm pretty pleased with my investment.

Does that mean it's time for me to sell?  Nope.  Someday it's very possible that their self-driving cars will fundamentally change our ideas about transportation.  Google is working on contact lenses that monitor blood sugar for diabetics and automatically transmit regular data to their health care professionals.  In December alone, they bought seven robotics companies.  Recently Google announced a 2:1 stock split to be distributed on March 27.

This is a company I plan to own forever. But forever is a very long time.  And there are always bumps along the way. That's the way it really works when I buy low.   I know I may get the chance to buy even lower before I ever think about selling high.  My objective is to build wealth, not to be perfect.