Stocks And Shares - Buy Or Sell
Over the past year the stock market has fallen by 25% from its peak and plumbed new lows before recovering a little and in recent weeks the prices have risen by almost 30% from its lows of early 2009. Is this the time to buy our sell shares?
We all know stock markets can be unpredictable or volatile. But you can't invest looking backwards, only forwards. And now may be a great time to take stock of where we are and where we are going and consider whether the future holds great promise or even more misery. Things might look really bad out there at the moment but when fear and misery is all pervasive and all around us 24x7 now might be the time to buy rather than sell shares. Here are some facts to consider.
Firstly by any historical measure shares are amazingly good value at the moment. Not only are prices lower but also dividend returns are offering higher returns than ever before. This is good value in anyone's book so we should be really out there filling our boots.
Also share prices are always affected by bad news. We can't be certain but much of the bad news is already factored into most share prices. It is perfectly possible that most doomsday scenarios are already considered and again history shows that few of those scenarios come to pass. This again is making shares cheap and enhancing their value.
It is also worth remembering that if you already own shares and these are showing a loss, you only realise a loss if you sell so why be anxious to sell. If you have any expectation of a share or market recovery, why turn your paper loss into reality? Surely it is better unless you know something that no one else does or if you need the cash, to sit on your loss until the market recovers.
Now if you are persuaded that now is the right time to buy rather than sell shares to take advantage of the good value that there might be out there, there are four very simple steps followed by all good investors to optimise their investment.
Firstly stay invested for the long term. Shares are a long term investment and any thinking about selling must be driven by the context of your financial goals, not by short term volatility. This will pass in time as normal market conditions, thinking and behaviour return. You should think of holding any share you buy for at least 10 years.
Don't try to time the market. You will get it wrong. Market timing seldom works in practice and is more likely to mean you will miss out on any gains there might be. And you will always find reasons not to invest in the market.
Spread your money around to diversify your risk. Invest across a range of companies, a wide spread of market sectors and a mix of small, medium and large companies.
And finally see the volatility and unpredictability of share prices as an opportunity rather than a threat. To take advantage of this drip feed your money into the market through a regular savings plan and the like to ensure you buy more when prices are cheap and fewer when prices are high.
But whether you have decided to buy or sell your shares, before you push that buy or sell button, make sure you have done your research properly and ask yourself if you could would you buy the whole business. If the answer is yes, go ahead and buy. No means it's time to sell.
No one can predict the future and determine when is the right time to buy or sell shares. We do know, however, that shares will always be at their cheapest when the news is unrelentingly bad, when the economy is struggling and when few can see the fabled green shoots of recovery. This is the time when great investors act. This is the time to buy shares in great companies at low cost. Waiting for the recovery means you have waited too long. Great investors leap, they do not wait and see.
As Warren Buffett said, and he should know about how and when to buy or sell shares for profit, 'A simple rule dictates my buying-be fearful when others are greedy and be greedy when others are fearful.' Good advice. Is the world in a greedy or fearful phase? That is for you to decide and to use as a guide to help you decide whether now is the time to buy or sell shares.
And one last piece of advice. Remember the price of your shares can go down as well as up. But then you knew that already.
Good luck.