To buy or not to buy, that is a good question! It’s also one of the hardest questions to answer because everyone has a different opinion on the matter. Some people buy whenever they have free capital and hope that dollar cost averaging over the years will even things out. Others carefully calculate over a long period of time with charts and quarterly reports to buy at the most opportune time.
Sadly, a majority of people seem to buy at the worst possible moment; when the stock price rises over a period of time and they jump on the bandwagon. That bandwagon soon becomes a sinking ship as the short term value investors make out like bandits with “your” money when they sell and the stock price plummets. What’s even sadder is that most people sell right away just to limit their losses.
I know I’m not an investing expert, but I can share with you my own personal thoughts on when to pull the trigger on a favourable stock.
Investor MentalityThe scary part of investing is not the actual stock market itself ; it’s the unpredictable humans buying and selling through the stock market that give it a bad rap. When you have people “playing” the stock market like a casino game, selling in May and walking away” or selling because of a financial crisis half way around the world, there is a lot of market instability that can throw a true investor off of their edge.
A great company with a well performing stock is not going to stop being a good company just because a foreign country is bankrupt. A solid company that provides products that millions of people use every day is not going to stop dead in its tracks because a blanket currency isn’t panning out like people thought it would. As people panic and sell their stocks from excellent companies, I try and use their foolishness to my advantage.
Buy When Everyone Is SellingI don’t like paying full price for anything I purchase so why would that be any different with how I purchase shares? I normally wait till some form of panic causes a market correction and good, solid stocks are sold off by concerned investors. Over the last week and a bit for example, there was a slight dip in the markets and I purchased a few stocks while the prices were down. There was nothing wrong with the companies’ shares I purchased, they were just sold by perhaps a jilted investor who didn’t want them anymore. I paid a reduced price for the shares which means the yield was higher and I get “more bang for my buck” so to speak.
Finding The BottomI believe the “Intelligent Investor” touches a bit on this subject and says never to buy when the stock price is decreasing. That makes perfect sense but no one knows really for sure if and when, the markets start recovering. Often I’ve bought shares thinking the markets have returned to normal since the share prices started increasing, only to find out that very same day they continued to fall even more. I think predicting when the markets bottom out is just as tricky as trying to predict when a share price hits its peak. Again I’m by no means an expert, but I’ve learned to watch for “soft bottoms” as I call it, where stock prices fall drastically for a few days then only slightly recover the next.
For example, share prices drop $3 or $4 dollars over four days then increase maybe $0.10 on the fifth day. That $0.10 recovery is just a mere drop in the bucket compared to how much the share prices have fallen. I’ve learned my lesson to never buy on these slight gains and wait for a more solid recovery before pulling the trigger. So far it has been working for me, but I’m sure it will fail me more times than not down the road. That’s why It’s important to rely on a more fail safe strategy that will never let you down.
Setting Price PointsSetting a price that you want to buy in at and then actually buying in at that price, is a guaranteed way of investing without worrying about timing the market. As a dividend investor, I calculate what a stock price needs to be in order to give the yield I desire. Then when the stock reaches the price I’m willing to pay, I hit the buy bottom to lock in my yield on cost or, the return on my investment without ever having to sell the shares.
Of course everyone feels like a turd when they buy in and the share price keeps dropping, but this way you have no one to blame but yourself! Heck I always say BUY MORE if the share price keeps dropping and average down your investments. Not everyone has extra capital sitting around to invest like this, but eventually you will have dividends left over, like fruit cake at Christmas and averaging down will be possible.
Do Your Homework!Make sure when a company’s shares are falling, it’s not for a good reason. I’m sure there were people buying up Nortel shares as they plummeted into nothing, that’s why its your due diligence to make sure the company your investing in will be around in the near future. It’s why I always invest in blue chip stocks that can fulfill needs and services well into the future. I could see the demise of Yellow Pages heading into the digital age, so I avoided it like the plague. If you are smart about it, you can see a good business model without having to any major investigating.
Timing the markets perfectly is an impossible feat. Over time I’m sure everyone learns their own strategies and signs to look for. I’ve found what works for me so far, so here’s hoping they last me a little longer.
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