What Is a Record Low?
A record low can be recorded by year, month, week, or a single trading day. They usually correspond to bad news about a company or a trade. Sectors and industries are often discussed when a record low is reached, and it's usually a headline that grabs attention to the group.
- A record low is the lowest price ever recorded by a security or asset.
- Record lows are generally a sign that the company or industry is facing stress.
- Buy low, sell high is an investing strategy through which investors seek profit from the market's propensity to overshoot on downsides and upsides.
Understanding Record Lows
Record lows may trigger high volume selling, which can drive prices even lower. Accordingly, many traders pay close attention to record lows in their markets. A record low is usually bad news for a publicly traded company. Stock prices for companies that drop to record lows typically struggle to recover or rebound in value.
Examples of record lows include:
- Unemployment is at record lows
- The dollar fell to a new record low
- Yields have fallen to record lows
- Manufacturing jobs hit a record low
- A pre-earnings warning sent shares tumbling to a record low.
Most investors see record lows as signs of weakness and avoid buying, but some see them as opportunities to buy low—at a bargain. Obviously, the investor's goal is to buy low and sell high. Penny stocks tend to continually make new record lows because many are fraught with fraud.
Buy Low, Sell High as a Strategy
Buy low, sell high is an investing strategy where investors seek profit from the market's propensity to overshoot on the downside and upside. Although simple, it is difficult to implement and execute systematically.
It is easy to identify highs and lows in hindsight, but in the immediate moment, it is not. And, prices reflect the psychology and emotions of market participants. Experienced traders use various forms of technical analysis to identify optimum buy and sell levels.
Markets may be driven to high prices during market bubbles or low prices during market sell-offs. These events may be opportunities to buy low and sell high. However, if the market continues trending in one direction, the strategy would not work. And prices that look high one day may be perceived as low the next.
Traders and investors aim to develop objective methods to determine whether prices are high or low. When prices are low, sentiment tends to be negative overall, influencing more bullish holders to sell. Similarly, when prices are high, it may be difficult to justify selling a winner.
Market participants’ perspectives vary: some bulls will consider a stock price low while bears see the same price as high, with each side able to justify their views logically. The challenge is to determine which stocks are reaching extremes based on fundamentals and which are driven by market psychology. A simple buy low, sell high strategy employs moving averages, which are derived from price alone and are helpful in determining price trends.
Example of a Record Low
Chipotle Mexican Grill, Inc. (CMG) is a fast-casual Mexican food chain based in the U.S. The company went public on January 25, 2006, at a price of $22, which happened to be the record low for the company. That price was reserved for those who were able to purchase shares at the IPO price, generally speaking, that's reserved for institutional investors.
After the shares opened for trading, the lowest price for the day on the secondary market was $39.51. However, the shares traded down to $36.86 on November 21, 2008, during the global financial crisis. As of late 2020, shares of Chipotle were trading hands at over $1,200.