6 Tips On When To Buy and Sell Stock

Buying and selling stock is a skill that can make or break a person’s efforts at making money from shares and their own investments. Knowing when is best to purchase stocks and when is best to offload is the key to success. So, here are some good tips.

Whenever A Stock Is On Sale

Consumers are always looking to get a good deal whenever they are shopping.  The popularity of the Christmas season as well as Black Friday are classic examples of how low prices can spur insatiable demand for products, whether they are footwear, electronics, apparel or just about anything else.  For some reason, however, investors don’t get anywhere near as excited whenever stocks happen to go on sale.  There is a herd mentality in the stock market that takes over.  Investors have a tendency to avoid purchasing stocks whenever prices are low.

The end of 2008 and into early 2009 was a time of extreme pessimism.  However, in retrospect, for investors this was a great opportunity to pick up numerous stocks at really low prices.  Arguably last fall was another good time to buy and there are still many deals that exist in the current market.

When Your Buy Price Is Met  

It’s very important that investors know how to estimate the worth of a stock.  This will allow them to know whether or not it’s on sale and most likely to increase to the estimated value.  It isn’t important to come up with one stock price target.  Instead it is more reasonable to establish a good range where you can buy the stock at.  Good starting points are analysts reports as well as consensus price targets, where an average is taken of all analyst opinions.  These figures are published by a majority of financial websites.  Without having a price target range, it is difficult for investors to know when a stock should be purchased. Tech companies tend to be well worth a look. For example, look  at the Telstra or TLS share price or the Google share price. Creating a price target for companies like these and purchasing can be a smart move.

When A Stock Is Undervalued 

A great deal of information is needed in order to establish a price target range, including whether or not the stock is undervalued.  Estimating the future prospects of a company is one of the best ways of determining the level of undervaluation or overvaluation of a stock.  Discounted cash flow analysis is one key valuation technique that is used.  It takes the future projected cash flows of a company and discounted them back into the present.  The theoretical price target is the sum of those values.  Logically speaking, if the stock price is lower than this value, this most likely it’s a good buy to make.

There are also other valuation techniques that are used, including the stock price to earnings multiple being compared with competitors.  In addition, there are other metrics that can be used for determining whether or not a stock price appears to be cheap compared to key competitors, including price to cash flow and price to sales.

When The Stock Can Be Held Patiently

If you have identified the price target of a stock properly and estimate that it’s undervalued, you should plan on the stock increasing in value any time in the near future.  It may take some time for the stock to rise to its real value.  Analysts who make price projects for the following month or quarter are just guessing that a stock is going to quickly rise in value.  It may take a few years for the stock to appreciate so that its closer to your price target range.  Holding a stock for a period of three to five years can be even better, particularly if you are reasonably certain that it will grow in value. Here are some good tips on patience.

When You Do Your Own Research    

It can be a good starting point to rely on advice from newsletters or analyst price targets.  However, all great investors conduct their own research on a stock.  It can involve things like going online and checking out presentations done at industry trade shows or for investors, reading news releases or reading the annual report of the company.  This information can all be easily found on the investor relations page of a company’s corporate website.

Bottom Line

Peter Lynch, the legendary stock-picker, recommends that investors purchase what they are familiar with, such as one of their favorite retailers from their local shopping mall.  Investors can also become familiar with a company through speaking with other investors or doing some reading online.  When combined with the tips above, the most profitable way to buy a stock is to use a common sense strategy.

Source: Financial Watch