The right way to invest in Stocks
By Stockguru
Many people ask when and what to buy in both a bull market as well as a bear market. Are we going to chase prices higher so that we will not miss the boat? The answer is no as we need to understand that buying a share is buying into the business behind the share. In most instances, there are several ways to buy into a share but I propose a safe way to do so by buying shares on offer.
In order to buy shares on offer, we have to understand that most of us love to buy things on offer. For example, we are fast to spot bargains in retail outlets to buy clothes going at half price during special sales held throughout the year. Obviously, we save money in the long run if we purchase clothes at steep discount to their original price.
For share purchase, we can do the same thing as well in our search for value. In my opinion, value investing pays off well in the long run as we buy shares cheaply below their true intrinsic value. Imagine that you are always keen to own a retail outlet and you know of a publicly traded retail outlet selling for 100 million in market capitalization. One fine day, due to an unfortunate terrorist attack in one of the towns that this retail outlet is operating in, the stock price plunges by 50% overnight. The fear is real but one has to be rational under such circumstances. Can a company which has full operating capacity be trading at half its value overnight? As a value investor, one must seize the opportunity to buy when the herd are fleeing away. Of course, all investments must be done with prudent homework done that the business is affected but not fatal.
Stay calm when the rest of the investors are predicting doomsday. The best way to make money is to buy low and sell high. However, many investors fail to do so to take advantage of market weakness to buy into sound businesses which will multiply their investment capital several times over. Investing can be enjoyable if you learn to capitalize on such opportunities. This form of investment known as crisis investing has shown to outperform in bear markets as you are buying value and once you know that you are looking at value at a cheap price, buy your favourite stocks to ride the upturn which wil come by very soon. Have fun learning as I will share with you in my next article some undervalued plays in the Singapore market which you may like to accumulate gradually.
