Page 296 - How to Make Money in Stocks Trilogy

174 A WINNING SYSTEM

In the years ahead, hundreds and thousands of new creative leaders just
like these will continue to surface and be available for you to purchase. Peo-
ple from all over the world come to America to capitalize on its freedom and
opportunity. That’s one secret of our success that many countries do not
have. So don’t ever get discouraged and give up on the lifetime opportunity
that the stock market will provide. If you study, save, prepare, and educate
yourself, you too will be able to recognize many of the future big winners as
they appear. You can do it, if you have the necessary drive and determina-
tion. It doesn’t make any difference who you are or where you came from or
your current position in life. It’s all up to you. Do you want to get ahead?

The Stock Market’s “Great Paradox”
There is another fascinating phenomenon we found in the early stage of all
winning stocks. We call it the “Great Paradox.” Before I tell you what it is, I
want you to look at the accompanying graphs of three typical stocks.
Which one looks like the best buy to you, A, B, or C? Which would you
avoid? We’ll give you the answer at the end of this chapter.
The staggering majority of individual investors, whether new or experi-
enced, take delightful comfort in buying stocks that are down substantially
from their peaks, thinking that they’re getting a bargain. Among the hun-
dreds of thousands of individual investors attending my investment lectures
in the 1970s, 1980s, 1990s, and 2000s, many said that they do not buy stocks
that are making new highs in price.
This bias is not limited to individual investors, however. I have provided
extensive historical precedent research for more than 600 major institu-
tional investors, and I have found that a number of them are also “bottom
buyers.” They, too, feel it’s safer to buy stocks that look like bargains because
they’re either down a lot in price or actually selling near their lows.
Our study of the greatest stock market winners proved that the old adage
“buy low, sell high” was completely wrong. In fact, our study proved the
exact opposite. The hard-to-believe Great Paradox in the stock market is

What seems too high in price and risky to the majority usually goes higher
eventually, and what seems low and cheap usually goes lower.
Are you finding this “high-altitude paradox” a little difficult to act upon?
Let me cite another study we conducted. In this one, we analyzed two
groups of stocks—those that made new highs and those that made new
lows—over many bull market periods. The results were conclusive: stocks
on the new-high list tended to go higher in price, while those on the new-
low list tended to go lower.