One question that investors have been rattled with over time is the best time to buy or sell a stock. Unfortunately no one has mastered the art of timing their entries and exits, not even the most adroit investors. Very few investors have risen to the level of Warren Buffet in the financial world, but here is what he has to say of timing the market – ‘Unless you can watch your stock holding decline by 50 per cent without becoming panic stricken, you should not be in the stock market.’
Legendary trader and investor Jesse Livermore said ‘One of the most helpful things that anybody can learn is to give up trying to catch the last eighth – or the first. These two are the most expensive eighth in the world.’ He was referring to the topmost point which investors strive to sell their stocks and the lowest price to buy them. Livermore adds that the big money is not in the individual fluctuations but in the main movement. That is not in reading the tape but in sizing up the entire market and its trend.
But retail investors generally enter the markets in euphoria, when ‘easy money’ is being made. They have no inkling of market cycles or the patience to stay in the cycle. Sir John Templeton summarises it well when he says that bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria. A similar view is aired by Buffett when he says that be fearful when everyone is greedy and be greedy when everyone is fearful. Investing perhaps could not have been explained in simpler words than these. In their haste to make money retail investor tends to catch the next hot tip and loses his purse and more in the process. Had the simple formula of buying stocks, which are in dumps would have been followed there was more money to be made than is frequent speculation.
Just when the news is bad and no one wants to get near a stock is perhaps the best time an investor should start looking and picking these companies. Naturally companies who had been market leaders with good managements are the ones that should only be considered. It is at this point of time when these stocks are perhaps quoting well below their intrinsic value and would be on the radar of value investors.