These days, it feels like everyone is an investor. The media have made some serious hay out of the 2020-21 investment boom, which saw huge numbers of people enter the stock market for the first time, encouraged by a historic bull run.
However, what these stories often leave out is that, by the time everyone is rushing to buy the hottest new tech stock, it is already too late. In Switzerland, the land of high finance, there is an old saying that goes something along the lines of “never take investment advice from your hairdresser”.
What this means is that, if everybody you know is buying a stock, then the price boom has probably already peaked. So, when is the right time to buy a stock? While there is no one correct answer, there are certain moments where professional investors often choose to buy stocks. Let’s take a look at what these are.
When they first become available
People often talk about “getting in on the ground floor” when it comes to successful investments. While this is far from a truism, it is certainly an approach that many professional and institutional investors follow. When a company grows to a certain size, it may become publicly listed and sell its shares on a stock exchange, for anyone to buy. This process is known as an Initial Public Offering, or IPO, and is one of the most popular times for stock buying.
While anything can happen after an IPO, the idea for investors is to buy stocks as soon as they go on sale, in the hopes that they can secure an asset that will grow in value in the years and decades to come. This is why savvy investors should keep an eye on any upcoming IPOs that may happen, rumored or not, to see if any companies are planning to “go public” that might be worth investing in. Whether it’s rumored or not, it’s good to monitor the environment and see what’s coming.
When it looks undervalued
This is easier said than done. It is very difficult to determine for sure if a company’s stock is undervalued, which means that it is currently cheap to buy, despite the strong prospects of the company. You might think that a stock is undervalued because the company is performing well but has a low stock price. However, there could be a range of other fundamentals that are keeping the stock price low that you are not aware of.
Trying to determine if a stock is undervalued is the absolute core component of any investment strategy. It requires a strong knowledge of business fundamentals and a keen eye for companies that may benefit from current or future economic developments. If you are confident that a stock is undervalued, then now would be the best time to buy it.
When you have done your homework
This brings us to our last point. If you are investing on your own, you should do your homework. Do not simply invest in whatever hot tech stocks Reddit is currently fawning over. Any long-term investment strategy requires a consistent ability to cut through the noise and distinguish long-term price trends from short-term investing fads.
If you are serious about making your own investment decisions, it is up to you to do your research and read widely about any company that you are considering purchasing stock in. Remember, institutional investors have access to vast amounts of data that inform their investment decisions. They do their homework, so you should too. An informed investor is an empowered investor.
While there is no perfect time to buy a stock, it is clear that some moments are better than others. Keep these factors in mind the next time you decide to invest in a company.
