How Do You Choose the Right Time to Buy an Investment?

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How Do You Choose the Right
Time to Buy an Investment?

http://profitableinvestingtips.com/stock-investing/how-do-you-choose-the-right-time-to-buy-an-investment
Stocks seem to be recovering from the
end-of-2018 correction.

Is this the start of a new upward trend
or are we still in for
continued volatility?

When you believe that a stock, real
estate investment opportunity, or any
investment is about to go up in value,
how do you choose the right time to
buy an investment?

Although there are a few seasonal
predictors of stock prices, choosing
the right time to buy or sell typically
has to do with intrinsic value versus
current market price.

Now that stocks are recovering a bit,
what are the factors to watch for?

S&P 500 end of 2018 to January 2019

How Do You Choose the
Right Time to Buy an
Investment?

The best long term predictor of
increasing stock value is a good
business plan that generates
increasing earnings year after year.

Earnings are what drove stock prices
higher in the years since the 2008-9
market crash and subsequent
financial crisis.

And decreased earnings are what hurt
stocks like the FANG tech darlings in
the later part of 2018.

Thus, the prospect of increased
earnings makes an investment
attractive.

Investor’s Business Dailythinks this is
currently the case for the FANG
stocks.

Despite a sharp drop in the four
FANG stocks last year, the outlook
for the year ahead looks strong, with
Amazon in the best position, said a
Wall Street analyst Tuesday.

Canaccord Genuity analyst Michael
Graham also maintained a buy
rating on the FANG stocks –
Facebook (FB), Amazon (AMZN),
Netflix (NFLX) and Google-owner
Alphabet (GOOGL).

The analyst is most excited about
Amazon.com earnings prospects and
expects the stock to go up by a third in
the coming year.

His opinion of Facebook is that recent
losses have made it easier to post
impressive gains next year.

He predicts a twenty percent price
jump in 2019.

Netflix has raised US prices and the
analyst expect a fifteen percent
increase by the end of 2019.

And, he is also positive on Google,
expecting a ten percent increase in the
coming year.

You should do your
own fundamental analysis before
buying back into these stocks but, if
your analysis matches his, this is the
right time to buy into these
investments.

How Long Do You Expect
to Hold the Investment?

If we look at the 2008-9 stock market
crash and going forward we see a
spectacular rise in the S&P 500 from a
low of 770 to 2618 today.

Ideally, an investor with the value of
spectacular hindsight would have
cashed out at 1561 when the market
peaked on October 12, 2007.

But this has more to do with when to
sell an investment.

Either way the S&P 500 as nearly
doubled or nearly tripled in value
since that time.

We cannot go back in time to change
our investments of a decade ago.

But, we can learn from experience and
come to appreciate how in long term
investing the hills and valleys are
averaged out and simply by investing
in stocks with strong intrinsic value,
we can expect to win over the years.

S&P 500 All Through January 2019

So, whether you are still in the market
now, or sitting on cash after having
sold in October of 2018, how do you
choose the right to buy an investment
now?

The point of this exercise is that if you
believe that Amazon.com or any
company will continue to generate
profits over the years, it is time to buy.

Ideally, this is after a downturn when
the price is a bit more attractive.

If you are going to hold onto this stock
for a long, long time, the precise time
you buy it will be less important.

Dollar Cost Averaging

Many investors take money out of
their salary for investing on a routine
basis.

A reasonable approach is to simply
invest when the money is available.

This approach guarantees that you
won’t spend it before you choose the
right time to buy an investment.

The approach is called dollar cost
averagingand is described
by Investopedia.

Dollar-cost averaging (DCA) is an
investment technique which involves
buying a fixed dollar amount of a
particular investment on a regular
schedule, regardless of the share
price.

As a result of the approach, the
investor ends up purchasing more
shares when prices are low and
fewer shares when prices are high.

The first advantage of this approach is
that it removes fear and greed from
investing.

Thus you will be less inclined to buy
excessive amount of stock at high
prices and will naturally buy
increased amounts of stock when
prices are attractive.

This approach may not be as
profitable as excellent market timing
but, the vast majority of retail
investors are not really good at
market timing so this approach is a
huge plus.

Storm Clouds on the
Investing Horizon

Over the long term well chosen-stocks
using an intrinsic value approach are
one of the most effective vehicles for
building wealth.

But, there are times when external
events can greatly change the ability
of a company to make money from its
business plan.

For example, when China cut off
soybean imports as a move in the
trade war, investments in
agriculture, soybean farmers, grain
elevator operators, and shippers were
in trouble or in danger of going out of
business.

When the trade war threatens to
become permanent, companies
from Boeing to Harley Davidson lose
substantial parts of their business.

There is always static in the markets
as prices are bid up and down.

And, there is commonly a
melodramatic quality to analysts
bidding for your attention and
offering hope of obscene profits or
threats of devastating losses.

Most of this can be ignored over the
long term.

But, there are factors that change the
face of investing such as world wars,
basic changes in the world of
technology, or shifts in social and
political opinion.

A current example is this. Who could
have predicted the mess that the
Brexit has become?

But, now that it is unfolding, very
badly, investments in British stocks
may be bad choices for years and
years to come.

Kodak was solid gold until digital
cameras arrived.

And, if someone does not get control
of the mad man in North Korea, all
bets might be off.

The only way to deal with choosing
the right time to buy an investment
when such uncertainties exist is to
diversify sufficiently that a single bad
event does not destroy your
investment portfolio.

How Do You Choose the Right Time to Buy an Investment?

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