Investing: 2 Simple Questions to Ask when buying a Counter

I thought I would share with you guys 2 simple questions to ask yourselves when proceeding to buy a stock, bond or REIT that you are keen in investing. Some of you may already know what these questions are but I will share them in this post still. Okay, let us go through them:

Is the general market I am trading in at an all-time high?

This is simple for most investors or traders when you check the long term chart (like 5 years or maximum chart) but sometimes because our fingers are itchy and want to trade regardless of market condition, we make the mistake of buying the security when its at a high. This is not to say that you cant find stocks, bonds or REITs that have lower price values in an overbought market, but the chances of finding such bargain buys is lesser. The chances of making a capital gain is lower (and lesser if you actually do) because the counter has a higher probability of going down in the very near term as other traders who have invested in that same counter would be taking profits (unless you have done your homework and is confident that the security will make even higher highs). When the market is at an all-time high, I would personally suggest to:

  1. Take profits if you had previously invested in stocks for capital gains (but run the risk of leaving even more potential profits out of the table). Or if you are not yet nearing retirement, you can choose to…
  2. Hold the stocks and wait out a near term correction or bear market. Or if you have not invested any cash in the stock market, you can…
  3. Put your cash into low risk investments first like bonds, money markets and bank savings accounts and wait for investment opportunities to come when the market eventually corrects.

Then again, each individual investor is unique and has different personalities, risk tolerance and financial circumstances so I can’t prescribe a standard answer in this post. The above options I wrote is my personal opinion and may or may not apply to your situation. Okay what if the market is still trading within reasonable valuations? We go to the next question…

Is the counter that I intend to trade at an all-time high?

Actually it is the same question but different item. When faced with this situation, there are a few things we can do. We can…

  1. Ignore conventional wisdom and chose to purchase the stock anyway. After all, our fingers are itchy and we have cash to invest. Never mind about the consequences later…waiting is for losers. If the price goes down after we buy, sell the counter with regret as we cry all the way to the bank. Doesn’t seem to be a good idea for this option though…
  2. Wait patiently for investing opportunities when the price fluctuates to the lower of the 52-week price range. Buy ideally when the stock is at a 52-week low.
  3. Research other counters for good value buys while waiting for this security price to drop.
  4. Invest your capital in low risk investments temporarily to wait for opportunities to invest.

As you can see, you don’t need to have an advanced degree in economics or finance to figure out your strategies for tactical investing. Comment in the section below if you had better strategies to offer. I will reply!



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