Secondary Income: Buy Low, Sell High

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This may be the simplest truth of economics, however it is told and heard so very often that I think it gets lost in the noise of pundits and horn blowers. Put simply, Buy Low and Sell High. This applies to many of life's financial situations, well beyond the world of wall street stock exchanges and pork belly futures.





Recognize the Deal A good friend was in a jam not too long ago and needed to off load an expensive computer before taking a trip across the country. We agreed to a price that would eventually help both of us. Once back on his feet I offered to sell him the computer back for the same price and he declined. Not only was I able to later sell the computer at a decent profit online but I got about 6 months of use out of it as well. I was doing both of us a favor by purchasing the computer at our agreed price, he made a fine profit himself (for reasons I won't go into here) and I eventually was able to do the same.


Stocks and Retirement I so often hear from relatives and friends how much money they lost in the market or in their retirement accounts recently. There are only two ways to actually lose money in the market of which I am aware. The first is that the company in which you are invested closes it's doors (I'm looking at you American Home Mortgage...) and the second is to sell your stock at it's current low price. If you don't sell you haven't lost anything but current value. Assuming the company or fund group in which you are invested is sound (ie. scenario 1 above is unlikely) then if you have the time chances are you will end up making that value back and then some. Does this mark the time to sell? Only if you've recognized a better deal.


The Mortgage There was a time when I felt that a house was the best possible investment you could make. I'm sure many felt this way before the bubble. Now I'm convinced that investment in yourself and your relationships will offer the greatest returns, but I digress. There are obviously situations where owning your own home is preferable to renting and vice versa, however I don't believe the Buy Low and Sell High principle can be easily applied to your home. Let's assume first that you find a perfect house at a low price and move to purchase it while still in your current home. All of a sudden you're stuck with two mortgages and repair costs to bring your current home to selling shape. Then it doesn't sell right away, you may have to lower the price. Perhaps you will even be forced to sell at a price that makes it all a wash, or worse. Now let's assume that you've decided to sell your current home first, you do all the research and price accordingly. Only a month in and you've got a contract. Now you've got to find the perfect house or rent on an interim basis until you find it. Again there is the potential of wasting money though this seems the better of the two scenarios, by far. 


Looking at every financial situation in a Buy Low and Sell High scenario goes beyond saving money by reducing depreciation costs (such as purchasing a used instead of a new car) and puts you into the realm of making money in exciting new ways.