One of the first things most people learn about investing is that they should buy low and sell high. It is much easier to say than to do,but one ramification of this widespread thinking is that many market players tend to avoid stocks that are trading at all-time highs. How can a stock at its highs be a bargain?
The problem with that thinking is that the only way a stock can become a big winner is to trade at its all-time highs quite often. If you applied the "buy low, sell high" approach to a stock such as Apple Inc. (AAPL) , you would have missed most of the move when it went from $1 in 2003 to $156 today.
The point is, don't be scared of stocks just because they are at their highs. I often must battle my inclination not to chase a stock that is running up strongly to new highs. I find that it helps to study the strongest stocks and to look at the charts when they hit new highs and how they looked several months later. Those new highs don't look at all unreasonable in retrospect.
The easiest way to talk yourself out of buying a stock at its highs is to say it is extended and needs to rest. That may be the case, but so often the best stocks simply don't rest much.
I was just looking at the chart of Jupai Holdings Ltd. (JP) which I've mentioned quite a bit in the last month. The stock has gone from $12 to $27 in one month. If you bought low and sold high, you'd be long gone from this trade. Each time it hit a new high, it barely rested before making another move higher. I sold most of my shares too early because the stock looked extended when I should have been more patient.
If you are looking for new stocks to buy, the best place to start is with the list of new 12-month highs. Early on Friday morning the key stocks that were hitting new 12-month highs were Nvidia Corp, (NVDA) , Micron Technology Inc. (MU) , Bank of America Corp. (BAC) , Microsoft Corp. (MSFT) , Adobe Systems Inc. (ADBE) and Paypal Holdings Inc. (PYPL) .
Some of these stocks are not extended at this point. Micron, for example, is just coming out of a base and has very good close buy support. Adobe looks like a chase at this point, but when the action is this strong there is a big supply of dip buyers lurking and ready to buy. They want to buy low and sell high, but their idea of low may just be a few pennies.
There obviously are a lot of folks who have been overcoming their fears of buying highs. The bears will argue that it may be far too crowded, but it's working. The only way to compete in this market right now is to buy high and sell higher. If you aren't doing that, then you won't be able to do much at all.