Colombo stock market has gone up by over 1,000 points (more than 20%)
during the last few weeks. With this growth, a large number of investors
are either trying to enter the market or trying to maximize profits
from their existing investments. In order to assist them in their
investment decisions, this week we will discuss a topic that most
Is there ever a good time to invest in the stock market? This question
is frequently asked by investors, and for good reason, as no one wants
to invest in the stock market only to see it fall the following day or
even the following week.
Is there a right time to invest in stock market?
Is there a right time to invest in the stock market? That’s the magic
question people have asked for as long as the stock market has been
around. The simplest answer is that there is no right time to invest in
the stock market. But it may seem as if some people have figured it out,
such as billionaires like Warren Buffet who seem to always know when to
invest, how much to invest and where to put their money.
But, investors like him consider many more factors that have less to do
with guessing the ‘right time’ and more to do with trying to predict how
the stock will do based on recent reports and announcements by the
company. Even then, they could be wrong.
Many investors buy into and sell out of the market more frequently than
they should. They are trying to ‘time’ the market. If you have never
heard of this term before, it is described as trying to pick when the
stock market has hit a top or a bottom and then buying into or selling
out of the market accordingly.
For example, if you are predicting that the market has hit the peak of
the cycle, then you sell out of your holdings because the market has
nowhere to go but down. Conversely, if you think the market has
bottomed, meaning it won’t go any lower, you invest your money, since
the market can only go up.
Many smart investors try to predict how stocks and the overall stock
market will behave and try to invest according to what they believe will
happen. Even though they may predict the market right nine out of 10
times, they will still get it wrong that 10th time and it will cost them
money, either because they invested in the wrong stock, or didn’t
invest in a stock that sky rocketed to the top.
It’s extremely difficult to predict how stocks or the stock market will
do. Although, it is possible to predict certain trends because they are
more obvious than many of the other subtler factors that can determine
how well a stock does. There are people out there who claim to know
exactly when to invest in the market. And a lot of people actually
believe them because of what they see.
But the fact is usually that these people invest in many different
sectors of the stock market and when they see success in one sector,
they only share that success which makes it seem like they know what
they are talking about all the time. This isn’t actually a scam
(although there are scams like this), but it’s more of the person hoping
his or her research pays off and more often than not, it does.
Just like people, you have companies with websites claiming to know
which stocks will go up in price. And just like the people claiming to
be stock market whisperers, these companies do extensive research which
gives them hints about which companies will go up and which will go
down. Then they share the information with the public, most of the time
for a fee.
Is there a wrong time to invest in stock market?
Unfortunately, it seems that there is a wrong time. Most people have the
tendency to invest at the wrong time. This is where the old adage of
“buy low and sell high” comes into play. A smart investor waits for the
stock to go low so he can buy low and sell high. That’s why billionaire
investor Warren Buffet says, “Be greedy when others are fearful and be
fearful when others are greedy.” In other words, don’t completely follow
the crowd and don’t be afraid to invest when you see an idea and
everyone else is scared.
It may run contrary to common thought, but smart investors across the
globe see the best time to invest in the stock market when its
performing its worst. When the stock market sinks or stalls, it is a
buyers market. This is simply due to the fact that stocks are fluid
forms of value; they change in worth often and sometimes drastically.
When the economy starts to underperform, people tend to sell of their
investments. It is an obvious response to people seeing their stock
portfolio values go lower and lower. These mass pull-outs of investments
cause the overall market to go into panic mode, dropping prices
for stocks across the board.
So, what does a wise investor with skilled investing strategies do in
this situation? Buy! But of course, there are other factors at play such
as market conditions, currency trading and aspects specific to a
particular stock should also be taken into consideration when buying
However, if you have the cash in hand to buy into stocks while they are
undervalued due to market conditions, you can make some excellent
investments. But there is no perfect time of day, hour or date to buy
stocks. Timing stock buys is also based on other mitigating factors.
Most investors however, do the opposite and buy high because they
believe it’ll keep going higher. We see in practice, most people will
only seek financial advice when the market is ‘good’, which ironically
is not the best time to buy.
Financial advisers who could only earn a commission selling investment
products will tell their clients to buy despite it being the worst time
to do so. Hardly anyone would seek advice from financial advisers when
times are bad. In fact, many financial advisers themselves would
recommend ‘safer’ products when actually it is the most viable time to
enter into equity markets.
Buying in a down market results in ‘cost averaging’, which means that
you have a greater opportunity to gather large gains in the future.
However, there is more to understanding when to buy stocks than simply
‘buy low, sell high’ or ‘buy in a down market’. The following are tips
to help you decide when to buy stocks in order to maximize your future
Tips on when to buy
Research about the fees that are associated with buying and selling
stocks. These fees directly eat up your profits. Because of this, it is
often beneficial to buy stocks in bulk and hold for awhile rather than
buying and selling rapidly.
Know the company. Even if a stock is at a historically low price, you
may not want to buy. Consider whether a rebound is expected and if so,
what time frame this will require. You want to purchase stocks in a
healthy company that will see future returns, not one that is on a fatal
First, be sure that you are well-educated. Do your own research: Ask
other investors, try to gather information from the regulator,
publications and articles and by speaking to persons in the industry
about the company, the industry and any fees you may incur from
Know the industry. Selection of the market leader and the industries is critical.
Trust your gut. Money, including investments is tied to
emotions. Follow research and advice, also trust your instincts. Make
decisions so that you will be able to sleep well at night.
No one likes to lose money in an investment. Therefore, perhaps more
complicated than simply buying a stock is the process of selling
stock. Stock is easy to sell. Simply contacting your broker or utilizing
the website of your online stockbroker can effect this transaction for
you in minutes. Its not the act of selling stock, but rather timing
stock sales to maximize profits where the need for precision lies.
There is no such thing as the best time to sell stock when speaking of
the hours in a day. The best time to sell stock is pertinent to each
investor, the market state and the stock in question. Certainly, the
best answer to when is the best time to sell a stock is to be selling
stock before it declines in value. This in theory is nice: Make the
most money one can on a stock or bond and get out and sell. However, in
reality well timing stock sales takes practice, diligence and at times a
lot of patience.
Most investors fail to make basic criteria before investing: Profit
goals. When investing in a stock, one should establish a set amount of
profit to make on a stock. When this limit is reached, selling stock
should not be a thought, but rather an act. For example, to purchase
stock in Company X for the price of Rs. 10 per share at its current
trading value establishes your starting point. Say you set your profit
goals for this particular stock at 30% or a Rs.3.00 increase in stock
price- a healthy return on any stock investment. So, when the stock
reaches Rs.13, you have reached your profit goal for this stock and you
should sell. Walking away with 30% gain on your investment is excellent
and far better than your money would have earned in near any other
The average investor who loses money, or simply does not maximize the
amount of money they could have made buying and selling stocks usually
falls into this pitfall: Not selling stocks. Many investors watch their
stocks soar up and then unable to contemplate their stock no longer
increasing in value, hold on to as it falls. This is the most common
problem with investors timing stock sales. They simply cannot let go of
their stocks and therefore follow them all the way down.
Tips on when to sell
Good selling techniques matter because losses are difficult to recover.
Use all published information. These resources will often not only
have numerical data but information about the company, the market and
opinions of experts. The great thing is most of this information is free
and available at anytime.
Follow the company closely. Ideally, you want to get to the highest
point and sell them. This, however, is not always reasonable and
requires access to a magic crystal ball. A good rule of thumb is to sell
stocks before they have plunged 10% below a recent high. After this
point, you are likely not to see an increase and will incur unnecessary
The problem in investing in shares is that when you see your share
price rising, you don’t want to sell. Greed takes over and you always
hope for a higher price. So, you keep waiting and waiting. And, should
the market suddenly tumble, chances are high you will panic and sell and
probably lose out too. Fix an exit price and when your share reaches
Follow the industry. Independent companies do not operate in a
bubble. It is important to understand the broader industry in which the
company exists in order to predict future gains or losses.
Trust your gut. Money, including investments is tied to
emotion. Follow research and advice and trust your instincts. Make
decisions so that you will be able to sleep well at night.
In conclusion, the bottom line is that the market is unpredictable. You
can try to predict it, try to find the right time to invest or the wrong
times to avoid, but you will never get it correct 100% of the time. Too
many factors are involved for you to figure out the perfect time to
The stock market is dependent on consumer behaviour. Trying to figure
out when the right or wrong time to invest is extremely difficult. Even
though it seems as if some people have figured out a way to predict the
market, their prediction is just as good as your local weatherman
telling you that it will rain tomorrow. Sure, it may rain, but it’s just
an educated guess because there is a chance that it may not rain. It’s
the same with the stock market, even though a stock may increase in
value, there is always a chance that it will not. There is no surefire
way to predict the stock market!