A classic example from my buddy Steve Sjuggerud on a Wall St ?truth?, ie you have to buy low sell high?(reminds me of an olllld 2007 post here).
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So we tested which strategy works better: Buying near 52-week lows? or buying at 52-week highs. We looked at nearly 100 years of weekly data on the S&P 500 Index, not counting dividends.
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You might be surprised at what we found?
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After the stock market hits a 52-week high, the compound annual gain over the next year is 9.6%. That is a phenomenal outperformance over the long-term ?buy and hold? return, which was 5.6% a year.
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On the flip side, buying when the stock market is at or near new lows leads to terrible performance over the next 12 months? Specifically, buying anytime stocks are within 6% of their 52-week lows leads to compound annual gain of 0%. That?s correct, no gain at all 12 months later.
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Using monthly data, our?True Wealth Systems?databases go back to 1791. The results are similar? Buying at a 12-month high and holding for 12 months beats the return of buy-and-hold. And buying at a 12-month low and holding for a year does worse than buy-and-hold. Take a look??
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| 1791 to 2012? | |
| All periods? | 4.3%? |
| New Highs? | 5.5%? |
| New Lows? | 0.9%? |
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The same holds true for a more recent time period, this time starting in 1950??
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| 1950 to 2012? | |
| All periods? | 7.2%? |
| New Highs? | 8.5%? |
| New Lows? | 6.0%? |
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History?s verdict is clear? You?re much better off buying at new highs than at new lows.
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You might not agree with it? but it?s true.
Source: http://www.mebanefaber.com/2013/02/26/buy-high-sell-higher/
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