Updated: Jan 26
Recently, the Stock Market has become a hot topic that’s got everyone hooked. From corporate officials to university students, everybody’s looking for an opening to invest their money. While an investment can be great for financial security, it’s vital to know the best time to invest, be it in the stock market, or any other asset.
Riding the tides, braving through the losses, putting your money in the right place - these can be some of the most daunting aspects of jumping into the complex world of stocks.
In this article, you’ll find the basic steps that will cover investing in stocks for beginners and also about the best time to invest in the Stock Market.
The Age Problem - When should you start investing?
The thing with investing is that you can start anytime you have some extra cash in your hand. You can consider the best time to invest in stocks in terms of yields and the market situation but any age is perfect if you want to diversify your portfolio and savings plans.
To proof that, just take the example of the most successful investors in the world, Warren Buffet, who started to invest at the age of 11!
He was inspired by Benjamin Graham, the so called "father of value investing" .
I recommend to read one of his most popular books, The Intelligent Investor.
Whenever you start the journey, you have to make sure to not stop or withdraw your investment immediately after the first loss. Investing in stocks for beginners might be scary, but steer through the losses and you’ll soon find yourselves on the side of profits.
I invite you to enjoy this nice animated video which illustrates such a journey:
Comprehending Market Situations
Timing plays a crucial role when it comes to investing in the Stock Market. Here are a few tips you can consider while analyzing market situations and buying stocks:
1. Sales on Stocks
We, as consumers, always tend to go crazy when there is a flash sale, but it can be the opposite for investors. Before you decide, try to establish a price range at which you’d like to buy a particular stock and stick to it. Herd mentality tends to be problematic in the Stock Market, so watch out!
This is also known as "buy the dip" strategy. That means you set a target price drop and buy when that is reached. See the below chart of AAPL as example:
When properly applied, on a rising trend stock, this technique helps to maximize the profits, by increasing the probability of a good entry.
2. Analysis and Reports
Keep tabs on the stocks you wish to buy - study reports, analysis articles, and don’t lose track of the prices. You can also check on the company’s future prospects, annual reports, financial statements, etc.
This is not an easy task, and financial reports are not something easy to understand, but you can watch the below video to get a feeling:
By using key valuation techniques like discounted cash flow (DCF), you can determine whether the stock is undervalued or not. If the value of the stock is below this number, then it’s considered to be a good buy.
In general, this strategy is considered as conservative, however it proved itself quite efficient when used properly. The real stock gems are the stocks which have both right valuation and excellent growth prospects. Of course the stock market does not have many of these.
Returns and Timings
Broadly speaking, one can roughly estimate the best time to buy and sell stocks by trading on a particular hour, day, or even month.
Market volumes are highly volatile in the opening hours of the market, so it is wise to stay away during these hours.
Afternoon hours are the calm hours - it might be the best time for investing in stocks for beginners.
The Stock Market tends to drop on Mondays. Oh, and also during the end of the year.
It is a very controversial topic if one can really time the market, so this is why we have the next investing strategy on the list.
Dollar Cost Averaging (DCA)
This is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.
In other words, this is a technique which excludes the attempt to time the market. It works particularly well when used with wide market indexes such as S&P500 or NASDAQ100, because they are also averaging the overall market performance.
If you are a beginner investor and you are not sure about your risk tolerance and would prefer to be more conservative with your money, this might be the right choice for you.
But as the name suggests, by using this technique you shall expect "average" returns.
You can find more details about this technique here.
It is tough to pinpoint the best time to invest in a portfolio, but you can definitely push your luck and make it work out by following these topics. Also, keep a close eye on the market and watch out for recurring trends - these will definitely help you.
Hope this was useful for you! Please note that the above content is not an investment advise and shall be considered only for informative purpose.
Feel free to share you comments below.