I understand buy low and sell high, but then what?
If, say the S&P500, keeps growing there is no ‘peak’ to sell at. Do the gains compound? if so how? Or do you just hold it forever and sell when you want to get the money?
In: Economics
You buy an asset and hope it appreciates so that when you sell it it makes profit. Why does it appreciate? Because people want it. Why do they want it? Because they think it will appreciate. On and on the cycle goes. Some part of a stock’s price has to do with the fundamentals of the underlying company it represents, but a big part of the price also stems from arbitrary and intangible sentiment and expectations towards the stock.
The reality is that no one can predict market movements accurately so while ideally you want to buy at the lowest and sell at the highest, even if you manage that it’s still mostly luck. Realistically what you’re doing is buying at a perceived low and hoping that you will sell it for more than you got it for.
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