Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Thursday, December 29, 2005

Buy High and Sell Higher

Many of Wall Street’s well known guru’s tell prospective investors to buy low and sell high but is this really a solid strategy. I don’t think so especially when buying low usually means bottom fishing or looking for badly beaten down stocks that are no where near new high territory. When I started investing, I didn’t like the concept of buying stocks as they move into new 52-week high ground but I have come to realize that this may be the best strategy on the street. I first read about this type of strategy from Jesse Livermore, then William O’Neil, then Bernard Baruch and finally Gerald Loeb. My entire philosophy has been developed around this idea of buying high and selling higher and my results speak for themselves. I don’t have to prove anything; the numbers do it for me.

Without getting into a lengthy discussion on the topic, I will highlight a present day example that I posted last night on GMXR on the daily screen:

12/28/05 Daily Screen Excerpt:

“Many of you may remember that we first started to screen GMXR on 6/28/05 at $14.58 (daily screens only). We then added the stock to the weekly screens and the MSW Index on 9/27/05 at 24.00 (64% higher than our debut coverage). Today the stock gained another 6.13% on volume 188% larger than the 50-d m.a. GMXR has been on a tear and I have started to give the signal to lock in partial gains or at least protect your gains from a quick pullback. I want you all to understand the lesson of buying stocks that are making new highs. Time and time again I explain that stocks making new highs typically continue to make new highs. If anyone was scared to buy into GMXR at our $24 pivot point after the $10 run-up from $14, you have missed the additional 72% gain. This is what I wrote about GMXR on the 9/27/05 weekly screen:

“I see a breakout area near $23 to $24.” This week the stock hit $24.00 intraday but closed off of that price and stayed in the currently forming flat base. The official buy point is now a move above $24 on above average volume”

The stock (GMXR) closed at $41.35 today (12/28/05), exactly three months later. The gain from our first daily screen on June 28, 2005 is an impressive 184%. The stock has made a total of 17 weekly screens (including several weeks on the watch list) in 2005.”

Now you can see that a strong stock (a market leader) making new highs can go on to make additional highs but most novice investors would not buy at $24 after looking at the chart and seeing a 700% increase in the previous two years to $24. GMXR ran up from $2.50 to $24 in eighteen months and has since moved above $40 in the past three months. What looks high to one investor may still be low to another. GMXR wasn’t extended when we established the $24 pivot point so this helped us make a sound decision after the gains of the previous year. GMXR is now up over 1,500% in the past few years but I am extremely happy with my 72% gain locked-in (a gain that has happened in a few short months).

I can write forever about stocks that I buy at new 52-week highs and then sell much higher at a later date. It happens every year but most individual investors continue to bottom feed and buy beaten down stocks that aren’t going anywhere fast. Too often investors average down and continue to throw good money after bad instead of throwing good money after good. They get scared that stocks making new 52-week highs will start to reverse and crash the minute they enter. If you employ sell rules, you can protect yourself from this scenario (because it does happen from time to time). Not every stock you buy will continue to move higher.