Buy low/sell high

Everybody knows the old adage of buy low and sell high, yet why do so many people buy high and sell low?

I love entrepreneurship and the decision of many people to take risks and either start up or purchase a business should be appalled. I also like trading by buying and selling. A profit is a profit and traders shouldn't be upset in making too small a profit - naturally profit maximisation is optimal.

Likewise, I also believe a trader should never chase a product or service and pay a fair price, there is no value in paying a premium. I know, I have unfortunately done so on many occasions. I have chased shares where the price was too high, the market decided the valuation was too high and the price tumbled.

Likewise, I have considered the price too excessive only for prices to rise considerably and I have missed the opportunity. I am never concerned, I have missed out on potential profits, but this is still better than actual losses.

So I was surprised when I was down an old dive shop where I was employed chatting to the owner when he told me he had sold the shop effective June 30. I know the new owner and I now find out with his mortgage and business loan he now owes the bank a million dollars. We are possibly not at the bottom of an economic cycle, the situation is dire for many but may yet get worse.

Interest rates are at historic lows, but they are at that level for a reason. A rise in interest rates on loans of that size could quickly sink business earnings and we are in the throws of a two-speed economy. Currently the east coast economy is taking off, the residential property market is hot and the Reserve Bank of Australia will one day move to curb speculation. Should the east coast residential property market crash, this would have dire consquences for the economy at large.

I hope he has made an informed decision, any further downturn in economic activity on the west coast whilst the east coast is improving will have major consquences for the local Western Australian economy. The majority of the population lives on the eastern seaboard, the Reserve Bank of Australia is headquartered on the east coast and economic decisions are east coast centric. I only hope he hasn't bought high and will be forced to sell low.