Stocks and Shares: Knowing When to Buy

When it’s on Sale

We all know that when it comes to shopping, people are always looking for deals that will have them shell out less money. This is evident in events such as Black Friday and the Christmas season where prices drop and throw people into a shopping frenzy for products such as apparel, electronics, and footwear.

This, for some strange reason, cannot be said the same for investors who are less enthusiastic about sales. This is due to something called “herd mentality” taking over in the market because of the drop in prices leading investors to tend to avoid sales.

The Moment It Hits Your Buying Price

A rule of thumb in investing it to estimate a stock’s worth. By doing this, investors will if it the stock will go on sale or will rise above its estimated value. Investors should not come to a single stock price target; rather, they should establish a range wherein their stock purchase would be more reasonable. A good starting point would be analyst reports which consist of various opinions of analysts.

An Undervalued Stock

Much information such as whether or not the stock is undervalued is required for the establishment of a price range. A best way to determine a stock value level is through estimation of the company’s future prospects. An important key valuation technique is the discounted cash flow analysis that takes a company’s future projected cash flows to discount them back to the present. The amount the values would yield is the stock’s theoretical target price. Understandably, should the stock’s current price be below the aforementioned value, it is an indication that the stock is potentially a good buy.

Other techniques will have you comparing the stock’s price with the earnings of its competitors.

If You Can Continue Holding on to It

Let’s say you’ve already determined a stock’s target price and estimated its value, do not expect to see an instant rise in its value anytime soon. It takes some time for a stock to reach its true value before being traded. It may take a couple of more years for a stock to come close to a target price range. Ideally, it would be best considered to hold on to a stock for at least three to five years, more so if you are not at all confident with its ability to grow.

After you’ve done Your Own Research

It’s not enough to rely only on the analysis of target prices or the advices and forecasts provided by newsletters. A good investor will always do their own homework about their desired stock. This can come in a variety of ways such as reading the company’s annual report, keeping up to date with its latest news releases, and going online to see if they have released any new presentations to investors or at industry trade shows.