When to Buy Stocks? 7 tips that a beginner can consider about the timing of buying stocks.
Thanks to brokerage firms, investing in stocks has never been so easy; however, knowing when to buy stocks is still tricky.
You probably saw the stock prices at the bottom of your favorite business and financial programs, so you are tempted to ride the trend and earn more. However, you probably started on the fence since you know that investing in stocks is a risky thing, a high risk but a high return form of investment. And you are not alone. For beginners, investing in stocks is quite a scary thing to do. Still, nonetheless, they are venturing into it with the hope of having that potential higher return.
Thanks to brokerage firms and brokerage accounts, having stakes in stocks is now as easy as counting one, two, three. And while there are people who can manage your investments, you are probably thinking of approaching it with a do-it-yourself style, and that is okay. But though investing and buying stocks have never been so easy, knowing when to buy stocks is still a quite tricky thing. Take note that buying stocks will not automatically earn you money. The kind of stocks and when you will buy, sell, and hold them will determine whether you can maximize your potential earnings. This may sound overwhelming, so this article would provide you with valuable tips that would help you assess the proper time to buy stocks.
So, if you want to learn more about this topic, make sure to read until the end of this article.
When should you Buy Stocks?
For most investors, especially beginners, finding stocks where you can invest can be a fun activity. At the same time, if you did your homework and ended up buying appreciating stocks, then the activity could be considered lucrative. But when should you buy stocks? How are you supposed to determine when to buy those shares? Below are some tips that you could consider to identify when to purchase stocks that have a good chance of earning you some money.
1. When the market conditions are right. You can earn more if the market's sentiment is on your back than having it against you. Hence, buy stocks if there is an uptrend. Considering this, you should always check the and should always be aware of the market direction. Remember, the market is not fixed; it is always in the move.
2. When it is trending higher. Buy stocks when those stocks are being traded higher than the above-average. A downturn in most indexes may pull most stocks downwards, so it is risky to buy during a correction. However, the period after it is also a great time to buy stocks.
3. After a correction. After a correction, many are still afraid to invest, but the market will not always stay at the bottom; thus, you should lookout for a follow-through day. Historically speaking, the period after a correction is a great time to buy stocks at a lower or bargain price. Thus, monitoring the market and identifying the follow-through is a good determiner when to buy stocks. A follow-through usually happens on the fourth day or later of a rally attempt.
Follow-through is the signal for a potential bottom. Since it is already at the bottom, a shift in market trend (back to an uptrend) is more likely to happen. When the change happens, and there is a confirmed uptrend, that is the signal for investors to buy stocks again. But during this time, you should remain vigilant and wary since it does not mean that the danger has passed and is already fixed.
4. When the stocks are in the sale. Consumers are fond of sales. They are always on the lookout for Payday Sales, Black Friday Sales, Christmas Sales, and other Holiday Sales. Products during sales are low, which drives the demand to experience an increase. However, investors are not as excited about stock sales. In the stock market, a herd mentality among investors prevails, and most investors try to avoid stocks when their prices are low. Thus, the others who are undecisive follow them.
However, there are times when stock sales might be profitable. Regardless of whether stocks are oversold, investors can constantly assess whether stock prices are "on-sale" and likely to climb in the future. It is not required to set a definite stock-price target. A better strategy is to set a price range in which you would buy a stock.
Analyst reports and consensus price targets, which are averages of all analyst opinions, are ideal places to start when establishing a price range. These figures can be found on most financial websites. Investors would struggle to decide when to buy a stock without a price target range.
5. When the sales are increasing. Buy the stock of a company if it is growing in terms of sales. But when looking at the sales growth, check whether it is sustainable and can continue or just a one-time event and is just related to an event.
In addition, check the press release to see what the management has to say about the quarter. A piece of quantitative and qualitative information about the sales of the company would be good for you. By looking at both data, you can assess whether the company is experiencing sustainable growth or just a little windfall.
Based on data, smaller companies (those with sales of $100 million to $1 billion) grow at around 10% annually, while larger ones are growing at a rate of 3%. If the company hits this, then it is a good sign. In addition, comparing the company's growth on sales from the last quarter instead of just the last year would give you a clearer picture of the company's growth. If the sales show an upward trend (quarterly), that is a positive note and another good sign that you should buy that company's stocks.
6. When the stocks are undervalued. Determining a price target range requires a lot of data, such as a company's valuation. However, there are easy ways to know this and include it in your strategy. By estimating a company's future development and profit possibilities, one can measure the extent of overvaluation or undervaluation.
One of the more well-known techniques in valuation is the discounted cash flow (DCF) analysis. DCF gets a company's future predicted cash flows and discounts them back to the current cash flow through an acceptable risk factor. The target price is the sum of these discounted future cash flows. Thus, if the current price is below the target price, then those particular stocks are a good investment
Another technique that you can use to assess valuation is by looking at the company's dividend growth. You can also compare the stock's price-to-earnings multiple to other companies. Moreover, price to sales and price to cash flow are also valuable metrics when comparing a company's stocks to its peers.
7. When you did your own research. Your investment is your responsibility. Since the investments are your own, you should make sure that you are doing your part. Relying on analysts' reports and financial newsletters is good and acceptable, but you should do your own research.
This research may include reading the company's annual report and the latest news about them, including management, stability, etc. You could also have the different presentations that the company presented to investors and trade shows in your research.
Are you sure that stocks are the right thing for you?
Are you really sure about stocks? Stocks promise high return, but it is equally high risk. So, before venturing into stocks, before buying those shares from your favorite companies, you should ask yourself, "is stocks the right thing for me?" Remember, you are a beginner. While it is okay for beginners to venture into stocks, it is advisable for beginners to start on funds first, like index funds. Stocks are easy but at the same time hard, and beginners might find it overwhelming. On the other hand, starting with funds like index funds could provide you with experience. In addition, it is low cost and saves you more time since you do not need to study individual company profiles. The result of funds for most of the time is also average. Are average earnings bad? No. Average yields are far more preferable than losing your money in a bad investment. Remember, since you are a beginner and are still unfamiliar with the know-how of stocks, you are more vulnerable to bad investments.
But if your decision is final, and you are really sure of your abilities, then make use of the tips above about when to buy stocks so you can maximize your potential earnings.
Suggestions, projections, and forecasts can only do so much; at the end of the day, as the investor, you are the one who ought to make the decision. The tips above are guides that you can consider, and by combining them with your strategy, and common sense, you can get the most out of your stock investments.