The Stock Market’s Great Paradox — Buy High, Sell Higher
May 21, 2024
10 min read
The Stock Market's «Great Paradox»
What seems expensive and too high usually continues to go higher. What seems cheap and too low usually continues to go lower. The message is clear: buy high, sell higher. Why super-performers spend most of their time near new all-time highs — and why bottom fishing is an illusion.
In 30 seconds — the core thesis
- Buy high, sell higher. Analyze the biggest winners of the last 140 years and one pattern stands out: what seems expensive keeps going higher, what seems cheap keeps going lower. Multi-baggers become multi-baggers by inevitably hitting new all-time highs — how else could they?
- Psychology drives the paradox. At all-time highs, every holder is profitable, selling pressure is low, the «line of least resistance» points up. For stocks well below their highs, «trapped buyers» accumulate — overhead supply that suffocates every rebound attempt.
- 4% of stocks create 100% of the gains. Over the last 100 years, only 4% of stocks have been responsible for the total gains of the entire stock market. 48% barely match the performance of a one-month US Treasury bill. Where do the 4% spend their time? Near new 52-week highs.
The original analysis — the opening
Stocks are never too high to begin buying or too low to begin selling.
— Jesse Livermore, American investor and stock trader (1877–1940)
How does a stock go from $50 to $100 for the first time? How does a stock become a super-performer, a multi-bagger, a long-term wealth compounder? By inevitably hitting new all-time highs along the way. It climbs into new high ground. Uncharted territory.
Yet most investors, whether new or experienced, happily buy stocks that are well below their highs because they think they are getting a bargain. That is the great paradox: if you analyze the biggest winners of the last 140 years, you see exactly the opposite. What looks expensive keeps going higher. What looks cheap keeps going lower.
→ Read the full analysis on The Market by NZZ
Chart 1: Average cumulative S&P 500 total returns, 1988–2023
Source: JP Morgan, Guide to Markets, Q1 2024
01The core message: Buy high, sell higher
In conversations with market participants, one phrase keeps coming back: «I don't buy stocks that are hitting new highs.» The reasoning: it's safer to buy stocks that have fallen sharply or trade near their lows. It feels like a bargain.
The data says the opposite. One of the great paradoxes of the stock market is that what seems expensive and too high usually continues to go higher, and what seems cheap and too low usually continues to go lower. This is true for both individual stocks and the broad market indices.
The core principle
The message is clear: buy high, sell higher. This contradicts the naive instinct of «buy low, sell high» — but that instinct is exactly the problem. It leads investors into the wrong stocks, while the real winners always seem to be «already too expensive».
02The psychological advantage of new highs
Psychology is the most important factor in investing — it accounts for more than 60% of our investment success. Maybe even more. So why is owning stocks at new highs an advantage?
It all comes down to the «line of least resistance» — and how the investors who own the stock think and feel about their position. At a stock near its all-time high, every holder has a profit. Every holder feels validated in their analysis. Every holder lets the winner run. It's not a position to worry about — the uncertainty level is low. And we know: investors dislike uncertainty.
The flip side: stocks with losses. Thierry remembers conversations with clients about portfolios — winning positions were never an issue. Losing positions were. Two typical reactions emerge:
- Buy more, simply to lower the average price. The fundamental story is neglected — it's only about increasing the probability of reaching breakeven.
- A limit order to sell at breakeven — the main goal is to get out with no loss and a black eye.
The origin of «weak hands»
The second reaction is the starting point for «weak hands» in the market: investors who don't believe in the company and are only interested in exiting without a loss. Their sell orders act as a ceiling on every rebound — until they're worked off. That's overhead supply.
03Overhead supply: When support becomes resistance
In a way, studying stocks is like being a psychologist. The behavior of prices and volume can tell you a lot about how the market feels about a company. Overhead supply is one of those emotional turning points — and the pattern repeats at every previous price level where unhappy buyers are «trapped».
The pattern (Stan Weinstein): A stock XYZ forms a trading range between 18 and 20 after a severe decline. The 18 level becomes temporary support, 20 becomes resistance. Then XYZ breaks below 18 — support becomes resistance. Everyone who bought in the 18–20 range now sits on a loss. They become «trapped buyers» — waiting for breakeven to sell.
The 10-floor analogy
Stock with overhead supply
Climbing from ground floor to the 10th
Stock at all-time high
Already standing on the 9th floor
Who will have more energy left when they reach the top? The stock with less resistance advances more easily and further. Little or no overhead supply — that's what you find near all-time highs.
Even if XYZ later breaks above the resistance at 15, the next resistance is still at 18 — the former support. This is where the trapped buyers sit, waiting to sell at breakeven. Their sell orders consume the buying power — the stock struggles through every previous pain level.
04Price reflects fundamentals
We've looked at psychology and technicals. What about fundamentals? A chart pattern visualizes the sentiment of a stock — but it also reflects the quality of the underlying business.
So what does a company trading near its all-time high tell us about its fundamentals? That the company is in trouble? That the prospects are modest? Most probably not. Stock market sayings like «the trend is your friend until the end when it bends» are not just pretty phrases. Companies in an uptrend continuously create value for their shareholders. That reflects stability, visibility of earnings, visibility of the underlying business — in the end, quality.
A stock at new highs tells you something
A stock trading near its peak is a clear indication that something good is going on. And do we not all want to own good companies? AutoZone is a textbook example: strong fundamentals, a secular uptrend over many years, most of the time near new highs.
If an attractive company seems expensive at first glance, patience helps. Great companies tend to under-promise and over-deliver. You should not be afraid to pay a premium for a great company — if the valuation seems too rich, open a probing position. You can always add more if the valuation goes down.
The honest question: did you ever tell yourself you missed a big winner because it was too cheap? Unlikely. The opposite, yes — you missed big winners because they seemed too expensive.
05The 4% rule: Where all the gains come from
Two statistics every investor should know — they change how you think about stock selection:
4%
of stocks = 100% of gains
Over the last 100 years, only 4% of stocks have been responsible for the total gains of the entire stock market.
48%
= one-month US Treasury bill
48% of all stocks just match the performance of a one-month US Treasury bill. That's capital with the risk of equity at the return of cash.
The follow-up question: What are the characteristics of the 4%? If they deliver standout performance over many years, they must have a chart that points up and to the right. They must regularly hit new 52-week highs. How else could they have been great performers?
Chris Mayer, author of «100 Baggers: Stocks that Return 100-to-1 and How to Find Them», reaches exactly this conclusion in his study: the best performing stocks spend most of their time near their 52-week highs. Intuitive, once you think about it. Conversely: which stocks spend most of their time near their lows? Exactly the ones you do not want to own.
The Microsoft question
All big gains in a stock's price come from new highs. A stock cannot make a big move without making new highs. In between, you lose money or time. If you want a chance to own a future winner, you must own it when it makes new highs. How else could Microsoft have become a multi-trillion company?
06Bottom fishing is an illusion
«Bottom fishing» — looking for winners at the low — is a seductive concept. The stock has fallen, looks cheap, the turnaround must come soon. Thierry's honest position: bottom fishing is not only unnecessary, it's also not where the big money is made in the long term.
It's like the lottery. Someone wins every week, but the winner's name is different every week. There are a few lucky bottom fishers happy about the recent recovery from the lows. But the majority will always struggle to return to breakeven at best.
The bottom-fisher strategy
Paying $0.50 for something worth $1
Sell when it hits $1. Doubling — sounds great. But this strategy pays off only once. And it assumes the «fair value» of $1 will actually be reached, which rarely happens for structurally weak companies. The stock often gets cheaper — because it deserves to.
The paradox strategy
Paying $1.20 for something worth $1
But in 10 years it could be worth $10. This strategy pays off multiple times. You pay a small premium today to participate in the secular compounding of a great company. This is the math behind multi-baggers.
The difference is not just mathematical, it's strategic. The first strategy bets on mean reversion in a weak stock. The second bets on compounding in a strong one. Over 10, 20, 30 years, that is the difference between a double and a ten-bagger.
The question of how to identify a great company in the first place is the starting point of Thierry's flagship Good Story & Good Chart analysis. Valuation discipline in concentrated mega-caps is covered in The Margin of Safety. And the historical patterns of concentration peaks are the subject of What Keeps Me Awake at Night.
07What to check now
1. Review your bias against new highs. If you have avoided a stock «because it has already run too far» — that's exactly the pattern Thierry describes. The right question: are the fundamentals intact? If yes, the new high is a feature, not a bug.
2. Check your losing positions for «weak hands» patterns. Are you holding a stock only to sell at breakeven? That's no longer an investment, it's hope. The disciplined answer: sell. The twelve sell rules give concrete criteria.
3. Look for overhead supply in your charts. If a stock trades below previous buy zones, trapped buyers sit there. That becomes a brake on every rebound. The better candidates: stocks trading above their previous highs.
4. Start with a probing position. If a great company seems too expensive, buy a small share. A probing position. That anchors you in the name, creates attention, and you can buy more when the valuation drops — or at least you participate in the compounding if it doesn't.
What disciplined investors do
They accept that the best stocks always seem too expensive. They buy them anyway — in probing positions that are allowed to grow. They understand that all-time highs are a quality signal, not a sell signal. They abandon bottom fishing as a strategy. They don't hold losing positions longer than the fundamentals justify — and would rather pay $1.20 for quality that could become $10 than $0.50 for mediocrity that might double at best.
08Frequently asked questions
Does this mean I should buy every stock at its all-time high?
No. Fundamental analysis remains essential. The paradox says: among stocks with intact fundamental stories, those at or near all-time highs have the highest probability of continued gains. A stock at a new high with weak fundamentals is a momentum trap — not a paradox opportunity.
What about value investing? Doesn't this contradict Buffett?
It doesn't contradict late-career Buffett. The «cigar butt» value approach from Graham's era — $0.50 for $1 — barely works anymore. Buffett himself has said for decades: better a great company at a fair price than a fair company at a great price. The $1.20 strategy is exactly that.
Does the paradox also apply in bear markets?
It applies relatively: in any market environment, relative-strength stocks spend more time near their highs than relative-weakness ones. In a general bear market, quality stocks also fall — but they fall less, recover earlier, and are the first to reach new highs. Overhead supply and the 4% rule hold across cycles.
How does arvy apply this principle concretely?
arvy looks globally for quality companies with Good Story & Good Chart — solid fundamentals and a constructive chart. This is not momentum-chasing, it's quality investing with chart discipline as confirmation. Sell discipline follows the twelve rules. Current positions in the Q1 2026 quarterly report.
Read next — the thematic anchors of this analysis
Good Story & Good Chart
Flagship philosophy — fundamentals + chart
Twelve Sell Rules
Discipline against «weak hands»
What Keeps Me Awake at Night
Concentration risk today
The Margin of Safety
Valuation discipline in the indices
Master Your Emotions
The psychology of investing
arvy Quarterly Report Q1 2026
Current positions
It is supposed to be hard
The paradox is psychologically uncomfortable. Buying stocks at new highs never feels like «a deal». Buying stocks at new lows always feels like «a bargain». That's exactly why the paradox works — because it's so uncomfortable. If it were easy, everyone would do it, and the opportunity would be arbitraged away.
The math is clear: 4% of stocks generate 100% of the gains, and these 4% spend most of their time near their highs. 48% deliver only cash-like returns — equity risk at cash yield. Investors who focus on where the winners spend their time, instead of where the losers look cheap, have the probabilities on their side.
The paradox translates these probabilities into behavior. Buy high, sell higher. Pay $1.20 for something that could become $10, not $0.50 for something that might barely reach $1. Probing positions in seemingly expensive quality companies. Sell discipline against «weak hands». The separation between all-time-high-as-quality-signal and low-as-warning.
Tom Hanks said it in «A League of Their Own» — the right motto for every long-term investor: It is supposed to be hard. If it were easy, everyone would do it. The hard is what makes it great.
Original written by Thierry Borgeat, Co-Founder of arvy, for The Market by NZZ. The extended arvy version was reviewed by Patrick Rissi, CFA and Florian Jauch, CFA. Sources in the original: JP Morgan Guide to Markets Q1 2024, Stan Weinstein's «Secrets for Profiting in Bull and Bear Markets», MarketSurge (AutoZone chart), TradingView (Microsoft chart), Chris Mayer «100 Baggers». Last update: April 2026.
Disclaimer: This article is for general educational purposes and does not constitute personal investment advice. arvy is a FINMA-supervised asset manager with a CISA license (Art. 24). Imprint & Legal Notices.
