Should You Buy Stocks When They’re Low or High? Smart Timing for Better Returns

Have you ever stared at your investment app, finger hovering over the “buy” button, wondering if now’s the right time? You’re not alone As someone who’s made plenty of investing mistakes (and occasionally some good calls), I can tell you that timing the market is one of the biggest headaches for investors everywhere.

In this article I’ll break down the age-old question should you buy stocks when they’re low or high? We’ll look at both strategies, their pros and cons and how regular folks like us can make smarter decisions without needing a finance degree.

The Appeal of Buying Low: Averaging Down Strategy

Let’s start with what seems like common sense buying when prices are low There’s an investing strategy called “averaging down” or “buying the dip” that many value-oriented investors use

What Is Averaging Down?

Averaging down is when you purchase more shares of a stock you already own after its price has dropped. This lowers your average purchase price.

For example:

• You buy 100 shares of XYZ Company at $20 per share
• The stock falls to $10
• You buy another 100 shares at this lower price
• Your average price per share is now $15 instead of $20

This strategy is popular because:

• It feels like you’re getting a bargain
• You’re lowering your break-even point
• It can amplify returns when/if the stock recovers

As the saying goes, “be greedy when others are fearful.” When everyone’s panic-selling, that’s often when the best deals appear.

Real-Life Example of Averaging Down

Let me share a personal example. Back in 2020, I owned some shares in a solid tech company that dropped 30% during the market crash. Instead of panicking, I doubled my position at the lower price. When the stock eventually recovered (and then some), my returns were much better than if I’d just held my original position.

But here’s the important part – I only did this because I had done my homework and believed the company’s fundamentals were still strong. The market was overreacting to temporary conditions.

When Buying Low Makes Sense

Buying more shares may prove wise if the market is overreacting to something. A lower share price may be a great opportunity to scoop up more stock at a bargain if there’s been no fundamental change to the company. Begin your trading day with a fundamental assessment of these factors.

Good times to consider buying low include:

• When solid companies are caught in broad market downturns
• After a company reports slightly disappointing earnings that don’t affect long-term prospects
• During temporary setbacks that don’t change the underlying investment thesis

The Dangers of Buying Low

But let’s be real – buying low isn’t always smart. Sometimes stocks are cheap for very good reasons!

The biggest danger is catching a “falling knife” – trying to buy a dipping stock that keeps dropping and never recovers. I’ve done this more times than I’d like to admit, and it hurts.

The average investor struggles to distinguish between temporary price drops and warning signals that prices are about to plummet further. Adding more shares might just compound your losses.

The Case for Buying High: Momentum Investing

Now let’s look at the opposite approach – buying stocks when they’re high or even at all-time highs.

This might seem counterintuitive (why pay more?), but there’s actually solid logic behind it. This approach is known as momentum investing or “averaging up.”

What Is Averaging Up?

Averaging up involves buying more shares as a stock rises, increasing your average purchase price. While this seems like paying more for the same thing, it can be a smart strategy when investing in winning companies that continue to perform well.

Why Buy High?

Research has consistently shown that stocks that have performed well often continue to perform well. Here are some reasons to consider buying high:

• Stocks at all-time highs have shown strength and momentum
• Strong companies often continue to outperform for years
• Many of the market’s biggest winners spent much of their time near all-time highs
• Waiting for a dip in a great company might mean missing out entirely

Real-World Example of Buying High

Consider investors who bought Amazon at $100, then $200, then $500, and so on. Each purchase was at what seemed like “too high” a price at the time. But those who kept buying as the stock continued its upward trajectory were rewarded tremendously over time.

When Buying High Makes Sense

Good times to consider buying high include:

• When a company consistently beats earnings expectations
• When a business demonstrates strong competitive advantages
• When long-term growth trends remain intact
• When management continues to execute well on their strategic plans

According to Schroders research, investing at market peaks isn’t actually as risky as many people believe. Their analysis shows that even if you had invested at the highest point before major market corrections, you would still have earned positive returns over the long run in most cases.

Which Strategy Is Better?

So which approach is better – buying low or buying high? The annoying but honest answer is: it depends.

Both strategies can work, and both can fail. The key is understanding when each approach makes sense.

When To Buy Low (Averaging Down)

✅ Best for: Value stocks, established companies with temporary problems, market overreactions

✅ Works well when: You thoroughly understand why the stock dropped and are confident the issues are temporary

✅ Risk level: Higher than many realize; requires careful analysis

When To Buy High (Averaging Up)

✅ Best for: Growth stocks, companies with strong momentum, market leaders

✅ Works well when: The company continues to execute well and grow its business

✅ Risk level: Can be lower than expected if you’re buying quality companies

Practical Advice for Regular Investors

Now let’s talk practical advice. Most of us aren’t professional investors, so here are some straightforward tips that have helped me navigate these decisions:

1. Focus on Quality First, Price Second

The quality of the company matters more than the price you pay. A great business bought at a fair price will usually outperform a mediocre business bought at a “bargain.”

Ask yourself:

• Does this company have a sustainable competitive advantage?
• Is it financially healthy with manageable debt?
• Does it have growth opportunities ahead?
• Is management trustworthy and competent?

2. Understand WHY the Price Changed

Before buying a dip, understand exactly why the stock fell. Is it:

• A temporary market overreaction?
• A minor earnings miss despite strong fundamentals?
• A serious problem with the business model?
• An industry-wide issue that may persist?

Similarly, before buying at highs, understand why the stock is rising. Is it:

• Based on improving fundamentals and execution?
• Just speculation or hype?
• Due to temporary factors that might reverse?

3. Use Dollar-Cost Averaging

One of my favorite approaches is dollar-cost averaging – investing a fixed amount regularly regardless of price. This removes much of the stress of timing and works well for long-term investors.

With this strategy:

• You automatically buy more shares when prices are low
• You buy fewer shares when prices are high
• You avoid the psychological pressure of timing the market perfectly

4. Build Positions Gradually

I’ve learned the hard way not to go all-in at once. Instead:

• Start with a smaller position
• Add more over time as your confidence increases
• Scale in at different price points

This approach works whether you’re buying low or high. It gives you flexibility and reduces risk.

5. Know Your Investment Timeline

Your time horizon should influence your buying strategy:

• Shorter timeframes (1-3 years): Price and entry point matter more
• Longer timeframes (5+ years): Company quality matters more than precise entry point

My Personal Approach: The Hybrid Strategy

After years of investing, I’ve settled on a hybrid approach that combines elements of both strategies:

1. For established, stable companies: I’m more likely to average down during dips if the fundamentals remain solid.

2. For high-growth companies: I’m willing to average up and buy at higher prices if the growth story remains intact.

3. For all investments: I build positions gradually rather than all at once.

This isn’t perfect, but it’s worked pretty well for me over time. The key is being flexible and thinking long-term.

Common Mistakes to Avoid

Let me share some painful lessons I’ve learned:

Mistake #1: Averaging Down on Broken Companies

Not every dip is a buying opportunity! I’ve made the mistake of throwing good money after bad, averaging down on companies with fundamental problems. This just compounds losses.

Mistake #2: Waiting Too Long for the Perfect Price

I’ve missed out on fantastic companies because I was waiting for a 10% pullback that never came. Sometimes paying up for quality is worth it.

Mistake #3: Ignoring Valuation When Buying High

While momentum investing works, valuation still matters. Buying great companies at extreme valuations can lead to long periods of underperformance.

Mistake #4: Making Decisions Based on Price Movement Alone

Price should never be the only factor. Always tie your decisions to business fundamentals, not just chart patterns.

Final Thoughts

So should you buy stocks when they’re low or high? The truth is, successful investors do both – but they do so thoughtfully, with an understanding of why they’re making each purchase.

The best approach combines:

• A focus on company quality
• Understanding of why prices are moving
• Gradual position building
• Long-term thinking

Remember that no one can perfectly time the market consistently. Even professional investors get it wrong often. The goal isn’t perfect timing but making thoughtful decisions that work well over time.

What’s your experience with buying stocks at different price points? Have you had more success buying dips or riding momentum? I’d love to hear about your investing journey in the comments!