Price moves in trends, and trends tend to persist.
All trends eventually reverse, but trend reversals
are easier to identify than calling Tops & Bottoms.
Cheap prices typically get cheaper, while high prices typically get higher (e.g. gold).
Words like "High" & "Low" cannot be used without the benefit of hindsight.
I don't think "Buying Down" is weird, but I do think it's dangerous.
In my opinion, “Buying Down” is a form of denial, rather than admit he was wrong,
the investor opts for another roll of the dice.
The “Buy & Hold” approach has ran out of gas on many occasions. If you bought-down
on the heels of the Great Depression, you’d have spent the next 20 years buying down.
You’d either have run out of capital or died waiting. On September 16, 1929,
the S&P-500 Index topped out at $31.90. It didn’t bottom out until June 14, 1949
when the S&P 500 closed at $13.60. The reward for holding steadfast
through that 20-year holding period was a Net Loss of –57.4%.
Going forward, the stock market didn’t reach breakeven until Sep 22, 1954,
when it closed at $32, twenty five years later.
That could never happen again?
Well, it’s already happened again and the venue was Japan.
On December 29, 1989 the Nikkei-225 closed at $38,916.
Today, over 20 years later the Nikkei-225 closed at 10,450,
down 73% from its 1989 level.
By itself, 'Time' cannot substitute for poor timing, because 'Time' is a double-edge sword,
it can heal the wound or intensify the wound. Ironically, the flaws in long-term investing
are most conspicuous over the long term.
Roger