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The proven secrets to master the “buy high and sell higher” strategy

by , 22 September 2017
The proven secrets to master the “buy high and sell higher” strategy
We've all heard the expression to make money in the market you need to, “Buy low and sell high.”

Well today, I'm going to shatter that conventional wisdom and introduce you to one investor who managed to master the art of “buy high and sell higher”. And in doing so, become one of the world's greatest investors.

It was so effective, that his stock recommendation publication returned 15.9% on average every year for 15 years - Ranking it first on a risk-adjusted basis.

A R100,000 investment would have been worth nearly R1 million.

Today, I'm going to show you this investors secrets to help you master the “buy high and sell higher” strategy.

Let me explain…

Introducing the conservative growth investor with a proven strategy

Martin Zweig became one of the world’s greatest investors by not taking big gambles. Instead, he used a risky growth strategy with a safety net.
First, he would look for stocks with good growth fundamentals. Second, he used a ‘safety net’ formula to pick stocks at the right price to make sure he could sell it for more later. And third, he sold the share when he thought it had peaked.
So how did he do this?
The “IPO conundrum”

How to “buy high and sell higher” and make a big profit

Step #1:  Look at four figures to find a stock with exceptional growth

Before Zweig even considered buying a stock, he would look at the company’s earnings from various angles.
Most importantly, he would check to see if the earnings rose consistently for the last four or five years.
He even went as far as to say, “If a company can show nice consistent
earnings for four or five years, I don't care whether it makes broomsticks or computer parts.”
But it’s not just about having consistency in the earnings… They need to be consistently GROWING too.
This growth must be primarily sales driven. In other words, you need to make sure sales are growing.
To check this, you can compare a company’s current sales revenue in its income statement to the previous years’. If it’s higher, sales revenue is growing.
To summarise what you need to look out for:
  • Consistent earnings over the past four to five years
  • The current earnings must be greater than the previous earnings
  • Earnings growth must be greater than the five-year historical growth rate
  • The current sales revenue figure must be larger than the previous years’
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Step #2: Buy the stock at the right price

Zweig used a safety net when picking a share. He looked at the price of the share in relation to its earnings - known as the P/E ratio.
Zweig said, “The data going all the way back to the 1930s show conclusively that stocks with low price/earnings ratios outperform stocks with high price/earnings ratios over the longer term.”
In other words, if you can find a company with great earnings figures, trading at a low P/E – You’ve got a winner.
Zweig picked shares with a low P/E – But the stock shouldn’t be extremely low because it means there could be is something worryingly wrong with the company.
At the same time, you don’t want it high because as he said, they underperform in the long-term.
To rule out dodgy shares, you should look for stocks that have a P/E:
  • Higher than 5
  • Lower than three times the current market P/E
  • Lower than 43

Step #3: Tell your broker one statement to sell your stock near its peak

After buying a stock using steps #1 and #2, Zweig then used something to ensure he sold a stock near its peak.
He used a ‘trailing stop-loss’.
Zweig sets his trailing stop-loss level between 10%20%.
Using a trailing stop loss will ensure you sell the stock near its peak and give you an extra layer of protection for your portfolio.
Now you know the secret to “buy high and selling higher”, you can use these three steps to find a profitable growth stock.
Until next time,
Always remember, knowledge brings you wealth,
Joshua Benton, Real Wealth
P.S – If you want to discover more proven investment strategies like Martin Zweig’s, then I urge you to check out Real Wealth

The proven secrets to master the “buy high and sell higher” strategy
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