Buy Low, Sell High

The adage to "buy low and sell high" sounds like an obvious path to building a large nest egg. The premise is as simple as it gets. All that is required is to buy stocks cheap, sell them when they become expensive, and repeat until rich.

The problem is that executing such a strategy is extremely difficult to pull off on a consistent basis. Knowing when a stock is cheap or expensive requires expert-level skills in accounting, finance, and valuation techniques along with a thorough understanding of an investment's competitive landscape.

The best stock pickers spend years in school and cut their teeth on far more losers than winners as they fine tune their analytical processes. They then compete with other stock pickers armed with a similar toolkit, so they must also have access to superior information or see something that their competition is missing to profit over the long run.

Therefore, I find this proverbial advice to be useless because of the difficulty in implementation, but that does not mean that investors should wing it or avoid stock ownership altogether. In fact, the chart below highlights an investment strategy that any investor can execute.

1. Be Mechanical: The investor had to remove all emotion from the investment process and be willing to buy each time a yellow dot appeared.
2. Go Against Instincts: Survival instincts protect us from perceived danger, so buying into panic required a strong stomach until the experience gained taught the investor that the drawdowns were not a threat.
3. Remain Disciplined: There have only been a handful of yellow dots over the last 40 years, so the investor needed to exhibit tremendous patience and stick to the strategy.