Sabin H. Bernstein - Buy Low / Sell High: A Commonsense Guide On Becoming a Better Investor

Copyright 2018 by Sabin H.Bernstein

All rights reserved. This book or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in a book review.

Print ISBN: 978-1-54392-387-2
eBook ISBN: 978-1-54392-388-9

Sabin H. Bernstein has been a successful investor in the stock market for many years. He takes positions of outstanding businesses with outstanding managements and holds them forever. This book is intended to give investors a commonsense guide on becoming better investors and protecting their own financial future.

I dedicate this book to my beautiful and loving wife, Gladys.

Every investor expects to make a killing in the stock market. They expect to buy low and sell high. Unfortunately, the opposite holds true.

Investors tend to buy high, and sell too low, because theyre inclined to buy when the markets are rising and sell when the markets are falling. Buying and selling behaviors make it difficult to beat the market. The problem is not in the market, but in the behavior of investors. Our emotions always prevent us from making rational decisions.

Every investor tries to beat the market. Beating the market means trying to earn an investment return greater than that of the Standard and Poors 500 Index, a popular benchmark of the United States stock market. Very few do.

Theres an old saying on Wall Street: Bulls make money, Bears make money, but Pigs get slaughtered. It warns the investor against excessive greed. Buying stocks on Wall Street can be a risky business. Stocks can go down as fast as they went up, so if you have a profit, you should always take it.

Profits on paper look good, but cash in your hand feels a lot better. Always turn a profit into cash when you have one. Never let a profit turn into a loss. No one ever went broke taking profits. Profits can always free up cash for new trades, and it avoids the risk of letting profitable trades go bad.

As humans, we all make mistakes; making mistakes in the market can be very expensive. There is no profit in being wrong. The side that makes the least mistakes is the most successful.

The goal of every investor is to have small losses and large gains. You dont have to be a market genius to succeed in the market. All you need is a little common sense, reliable information, discipline, and patience. The overwhelming evidence is that stocks will remain the best investment for all those seeking steady long-term goals. Buy quality not quantity.

As Warren Buffett said:

Investing is simple but its not easy.

The most basic fundamental yardstick for valuing stocks is the price earnings (P/E) of a stock which is simply the ratio of its price to its annual earnings. It has been shown to be a winning strategy. Buy stocks that trade at low prices relative to their book value and earnings.

• Minimize your losses by selling any stock at the first sign of weakness.
• Never fall in love with your stocks theyre not family. The longer you hold onto a losing position, the more youre apt to lose and your money will be tied up.
• Beware of get rich quick schemes. Never invest your money in so-called sure things there arent any. If something sounds too good to be true, it probably isnt.
• Dont confuse brains with a bull market. Its easier to buy stocks in a bull market than a bear market. You learn more from a bear market than you do from a bull market.
• A good sign is when management buys back their own stock. Its a sign that they believe that the company will keep on growing and be profitable.

Superior results come from knowing more than others. The more information you have, the better the outcome will be.

Buy companies that invest their earnings to grow their business and are shareholder friendly. Dont invest in companies that cut their dividends, are overleveraged, have a large debt load, and restate their financial results often. Some companies make their numbers, and some companies make up their numbers. Numbers dont lie, but people do.

Assume nothing.

The best opportunity for success in the market is to have clearly defined objectives. Invest in companies you know and understand. Never invest in companies you know nothing about. Even the best companies can be a poor investment if bought at the wrong time and the wrong price.

When someone hits the bulls-eye,

its the result of many misses.

• Dont expect instant results when investing in the stock market. It doesnt happen overnight. It takes experience and patience to build a profitable portfolio.

There will always be headwinds in the market. Economies can overheat, tighter financials could occur, major pullbacks could appear, and the market can be spooked by geopolitical events. Volatility must be accepted in order to reap superior returns.

As with all financial plans, you have to take into account your age, your experience, your financial position, and your tolerance for risk. Your character and your temperament play an important part in your success or failure in the market. Your investment results will improve if you learn to control your emotions.

• A decline in stocks is a common event. If you own good solid companies, you can purchase more stock in the company at lower prices.

Finding a winning stock is a matter of having a knack and following your hunch. There will always be undervalued companies to be found. You just have to look in the right places. The more information you have, the easier it will be to make the right decisions. You learn by doing experience is the best teacher. The successful investor is always learning.

• Buy for the long term not the short term. Stock returns are much more stable in the long run than in the short run.

Value stocks tend to have solid fundamentals but trade below their estimated fair value for their companies shares. You can always buy value shares at sensible prices. Value is buying something for less than its worth. Any company can be considered value stocks at different points in their business cycle.

Growth stocks are companies that dont have great fundamentals but investors believe future earnings per share will be higher than current levels.

Sometimes growth stocks are in vogue, and sometimes value stocks are in vogue. Historically, value stocks those with lower price earnings ratios and higher dividend yields have had superior returns and lower risks than growth stocks. Always have a reason for what you do. When companies lower their income projections for the year, its not a good sign.