Buy low, sell high. It's the oldest investment cliché in the book. It makes perfect sense if you think about it, yet it's exactly the opposite of what most investors do.

Investors were buying like crazy when the JSE was near 33 000 in May 2008 while the Association for Saving & Investment SA (ASISA) reported massive outflows into money markets when the JSE was around 18 000 in November. Investors were, as always, buying high and selling low.

Chances are you were one of those investors, but are you better off buying more shares when the market is around 33 000 or just over 23 000 where it is now?

Driven by fear and greed

Why do investors, even experienced ones, act so foolishly? Because investors are human and humans are emotional beings, driven by fear and greed (another cliché, but true nonetheless).

Buying low and selling high requires you to buy when everyone is terrified and newspapers are proclaiming financial apocalypse. It entails selling when the good times are rolling and all and sundry seem to be making a killing.

It's hard to buy low and sell high because it necessitates going against your nature and doing the opposite of what your emotions tell you.

Emotions are an investor's worst enemy, destroying wealth more effective than the most ravenous bear market. We need to 'trick' ourselves into dispassionately buying more when the market is down while buying less when it's up.

Second most powerful force in the universe

Which brings me to what is often called the second most powerful force in the universe (after compound interest): Rand Cost Averaging.

Rand Cost Averaging simply means dispassionately investing the same Rand amount each month no matter what the market does. By doing so you buy more shares when their prices are low and fewer when their prices are high.

You decide on a fixed amount and keep investing that much no matter what the market and your emotions do. Warren Buffet, the most successful and famous investor of all time, once said, "Be fearful when others are greedy and greedy when others are fearful.” With Rand Cost Averaging, without even thinking about it, you're heeding Buffet's advice because you'll be buying fewer units as prices rise and more as they drop.

Market crashes offer great opportunities to buy low but following a drop many former buyers become panic sellers (even when they won't need the cash for another decade or more), turning paper losses into very real ones. With Rand Cost Averaging you're, in effect, timing the market but in an unemotional way.

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