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Buy high and sell higher?


INVSTR Insights

The futuristic INVSTRs Cay-Low Mbedzi is back this week with an interesting concept which caught our attention, “buy high and sell higher”.

What’s the deal?

I’m sure we’ve all come across the line, “buy low and sell high”? Yes, this is one of the basic principles of investing but, here is something that you can look into when you want to define the term directly as you read it.

You may find yourself only buying into shares that have dropped to their low and hoping it will rise to their high once again, which is great when you want to sell, in the hopes that it rises again.

But the term "buy low and sell high" is not just based on share prices that have dropped to their low in expecting that they would rise again. No, but instead, this can be, Buy High and Sell higher when looking at a high share price and sell at a higher value because buy low sell high does not speak to the value of the share price, but rather the entry value having to be lower than your exit point.

Think of it this way.

Buy high sell higher - Share value.

Buy low sell higher - your purchase average.

In this case, fundamentals will and can be your guide in ensuring that you can buy a share price at its highest with expectations of it reaching higher prices soon, if not sooner.

But how is this possible? As I said, fundamentals play a crucial part in this and to ensure you make the right decision at the right time, look into a company's deals/corporate actions, announcements.

Every factor affects a share price differently which, can sometimes push a share price that is high, even higher.

The biggest misconception of "buy low, sell high" amongst new retail investors is that you only buy into share prices that are low or dropping so you can sell when it reaches a higher value. This strategy does not always work well and can sometimes end up in long periods of drawdown.

As an investor, always remember that you want value and profit when making your stock selection, despite the current position of the share price. Always make sure to read up on the latest news and what corporate actions of the company might affect the share price as this is most important.

With the above mentioned in mind, positive company news could be a reason to invest while the share price is high or slowly increasing to new highs. These positive news events or corporate actions could prompt the investor to buy high and sell even higher. What is also important is estimating the shares higher value but be careful of stock hype as this can increase a share price without fundamental backing.

Let’s take Jubilee Metals as an example:

Jubilee Metals Group PLC (JBL)

In my opinion, one might expect the share price to continue to rise because the growth in its share price is currently taking place only during phase 1 of its copper deal in Zambia. Jubilee is expected to start the following phases soon. Zambia is one of the global leaders in copper which, has seen demand increase and maybe bullish for a period.

According to various analysis, copper may reach over $20 000 to $30 000 in the coming years. This information can assist in knowing whether this company dealing with copper is still profitable.

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Considering the dealings that the company is undergoing and had in 2020, this including announcements:

  • Metals Group secured 2 million tonnes of copper run-of-mine material.
  • Jubilee Metals Group – Another set of strong results with further revenue streams coming online on March 26, 2021.
  • Jubilee Metals Group extraordinary growth just the foundations (Interview) January 27, 2021
  • Jubilee Metals Group secured additional 115 million tonnes of copper and cobalt tailings (Interview) on November 5, 2020
  • Jubilee Metals demonstrates how it has become one of the largest chrome ore processors in the world on August 25, 2020.
  • Why Jubilee Metals Group secured 2 million tonnes of copper run-of-mine material (Interview) August 7, 2020
  • Jubilee Metals diversifies into base metals in massive scale-up (Interview) June 19, 2020

In my opinion, Jubilee is still in a position of exponential growth over the coming years despite its skyrocketing share price.

The increase in share value has not yet taken full effect on the company's market value. What's important is knowing when you are planning to exist.

The chart below shows that the share price has already increased by over 400% in less than a year. Looking at the sheer size of the company, in my opinion, the latest dealings can put this company in a good position in the coming years. Making it a prime candidate to buy high and sell higher, and when looking at the value gain, you realize that if one was to buy it in any period between 2020 and today, you'd still be benefiting and may continue to benefit for maybe a few years.


Words of wisdom from Cay-Low

So, in closing, do not jump into an overhyped stock while it may be beneficial at times, it may also be very risky. Always remember that entry of a share price is not only determined by whether the share price is low or dropping. As the saying goes, a red hanger sale is in the colour red, but so is a warning sign. Make sure, you take an informed decision as not all dropping stocks will rise and not all low stocks will rise to the occasion.

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Cay-Low Mbedzi




Sources: Cay-Low Mbedzi, Directors Talk Interviews. 

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