Tips on When to Purchase a Stock
Here are a few tips that we have for people looking to add stocks to thier own self-directed mutual fund:
- Buy When Stock Prices are Low
- Identify Target Prices
- Buy Stocks that are Undervalued
- Understand Exchange Rates
- Understand Who is Buying or Owns the Stock
- Buy Stocks from Good Companies
It may seem like common sense to buy stocks when the prices are low and sell them when the prices are high, however, what ends up happening to most people is they worry the price will not go back up and do not end up buying a stock when it is low.
Some people look for a previous drop price to guess when the stock will turn around and start rising, and infact because a lot of people use this method, and because collectively they are the stock market, we start to see these trends.
But, for a rising stock it does not always go all the way down and by the time a decision is made to get in, it has already gone up.
Getting in when the stock is below the midpoint of its regular fluctuation will help save a few months of interest.
Many stocks have been analyzed by banks and stock analysts and have predicted what they think the stock value will go too.
Keeping an eye on these values can give you an understanding of what other people who may buy the stock are being told, and can allow you to make an informed decision.
Many stocks are overvalued. Contrary, others are undervalued. The overvalued ones are subject to getting to high and experiencing a bubble burst causing the stock to fall if they hit a bad quarter.
An undervalued stock may get a good quarter forcing the stock price up.
When purchasing a stock in another currency, keep in mind that 1) many providers like Questrade charge a fee to convert the currency (e.g. 2% per exchange).
Some banks charge 3%. While this does not make a difference on small trades, generally trades over $500 start to become more expensive that trading the currency yourself or choosing a provider that does not charge exchange fees.
The other factor to consider is the exchange rate itself. This will fluctuate through the year, and may result in 2%, 5%, 10% differences in your profit.
Timing purchases of other currency when your dollar is similar to the other can result in significant savings.
Many stocks are part of mutual funds already and are listed on the mutual fund websites.
When directors of companies buy stock, they are required to publically declare this information. When stock is being bought by these groups, they are in general a vote of confidence (but not always).
Likewise, when they are selling it may be time to get out. Keeping an eye on this information can be important.
The most important decision is probably to buy from good companies.
All stocks fluctuate in their prices, but good companies tend to be profitable in the long run and the shareholder is rewarded through either dividends or increased share prices.
Looking at financial statements and predictions, cash flow and debt, profit / earnings and expenses can provide a snapshot in time on how they are doing.
Using the product yourself can give yourself better knowledge on your experience using the companies products before it is reflected in a quarterly report.