Make Money Buying a Stock at its 52 Week High

Usually buying stock at its 52 week high is a bad idea, but it does not have to be. The fundamental tenant of investing has always been buy low and sell high, but it can be profitable to buy a stock at its 52 week peak contrary to popular belief when the short sellers are in trouble. Short sellers are more like gamblers than investors. They bet on a company’s stock price to go down rather than up. They are kind of like a gambler betting on the “Don’t Pass” line at craps (a very unpopular bet against the shooter). It goes against the grain of conventional investing and bets against the market. Short sellers borrow shares of a stock from the market and sell them in hopes that the share price will decrease in the short term. Then, they buy the shares back in the open market at the new lower price in order to give the shares back to the “person” who lent them to the investor in the first place. Clear as mud, right?

When an unusually large portion of a company’s stock is sold short, or shorted, the stock price can still start to rise. When the rise happens, investors who are short (hoping that the price will fall) will get squeezed when they have to buy the shares back at a higher price than they sold them for. Short sellers will have to start buying the stock back at some point while it is rising or risk losing their shirts as their losses mount. The short sellers’ extra buying will continue to make the share price increase.