52-Week Nonsense

Many investors look for shortcuts to investment profits, and are often drawn to alleged "market-beating" systems. These are rarely worth any attention.

For example, investors might be tempted to look for stocks whose share prices are trading near their 52-week lows and to consider selling ones trading near their highs. That sort of makes sense, after all, since to profit in investing you need to buy low and sell high, as they say. But things aren't as simple as they may appear in the investing world.

A company whose stock is trading near its all-year low might make a profitable investment... or not. The price alone doesn't offer enough information. The company might be a great one temporarily facing some trouble, in which case it could be well worth your while to research it further. Most solid, growing companies have temporarily fallen on hard times and have seen their stock prices plummet-- think of IBM (NYSE: IBM  ) , Johnson & Johnson (NYSE: JNJ  ) , and Home Depot (NYSE: HD  ) .

On the other hand, the company might be careening to its demise. A company going down in flames will likely hit 52-week lows one after another for quite a while.

Selling a stock at its all-year high isn't generally a good idea. Think of wonderful companies that have rewarded shareholders for many years. They set new highs all the time, despite occasional bumps in the road. Sell now, and you might miss out on future gains.

You can learn more about different kinds of companies and how to evaluate them in our how-to guides and online seminars. And for stock recommendations delivered to your mailbox each month, check out our new newsletters.