Warren Buffett is undoubtedly the world’s best investor. Aside from his excellent ability to analyze a company’s fundamentals, he is also very good in knowing when to buy stocks and when to sell it.
While knowing when to sell is quite tricky, knowing when to buy stocks the Warren Buffett way is easy.
The ideal on when to buy stocks is to “Buy low and sell high.” Ironically most people only pay lip service to this fundamental principle on when to buy stocks because what most are doing is exactly the opposite.
For example in 2007 people were asking the “experts” when to buy stocks. The “experts” said “now” in order not to be left behind. The Philippine stock index (PSEi) was at 3800 points (from a mere 1000+ points)
The “experts” at that time were saying that it will reach 4400 points. At 3000 points, people want a slice of the action so they jumped into the band wagon and bought when stocks were at its all time high. The PSEi eventually reached 3800 points but never went beyond that. It slid down back to the 1800 where we are now.
Now what happened to those people who bought when the PSEi was at 3800? Of course they incurred massive losses (on paper though) when stock prices dropped. In order to “minimize” their losses they jettisoned their shares immediately fearing that share prices might continue to slide further down.
This is what I meant by people “buying high and selling low” instead of the other way around. (Life lesson: stop asking the “experts” when to buy stocks. Make the judgment yourself!)
When the bear market comes along and excellent buying opportunities present themselves people who bought high did not have the money to buy anymore. They did not bother to ask “when to buy stocks “since most of them got burned by getting out to “minimize” losses or they are still holding on to their investments believing that it will somehow go back to a higher price when they first bought it.
Warren Buffett gives these words of wisdom on when to buy stocks, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can can’t buy what is popular and do well”
So how do we know when to buy stocks? Find out more in the next post “Follow Warren Buffett’s signal on when to buy stocks–Part 2”