Many investors often wonder if there is an appropriate time to purchase stocks.
This question ranks alongside many similar ones that imply that there is a method to determine if there is a “good” time to purchase stocks.
I wrote about whether it was a good time to invest in the Singapore stock market earlier this week, so the question of when is the best time to buy stocks should also be addressed.
The implicit assumption here is that investors can deduce an appropriate time to put their capital to work, thus avoiding the heartache of seeing their investments lose money temporarily.
Can you time the market?
The behaviour described above is akin to timing the market, which is described as buying stocks when prices are low and selling them when they go higher.
Timing the market may sound like an attractive strategy, but it’s notoriously difficult to do consistently.
Even professional fund managers who try to time the market usually fail, and a report from the S&P Dow Jones Indices showed that over a 20-year period, less than 10% of actively-managed funds managed to beat the market.
The reason is simple.
The stock market is affected by all manner of news flow, economic conditions, corporate news, and other events.
It is also the sum of millions of human beings with their emotions, opinions, and biases.
Hence, is should not be a surprise that it is next to impossible to time the market to determine the “best” time to buy stocks.
But if you cannot time the market, then how should you proceed?
Prepare a watchlist of opportunities
Rather than spending time trying to predict the direction of stock prices, it is better to spend time studying great companies that you will want to invest in.
These could include solid blue-chip names such as DBS Group (SGX: D05) or CapitaLand Investment Limited (SGX: 9CI), or dividend-paying stocks such as VICOM (SGX: WJP) and Haw Par Corporation (SGX: H02).
You may also single out REITs that can help you to build and grow a passive income stream from the receipt of regular dividends.
REITs such as Parkway Life REIT (SGX: C2PU) have a great track record of growing its core distribution per unit without fail.
Once you have assembled a list of names, this will represent your watchlist of opportunities.
Keep track of corporate developments
Next, keep track of the corporate developments surrounding this watchlist of stocks.
These could include growth plans, acquisitions, and earnings releases.
By doing so, you keep abreast of how the business is performing and are in a better position to decide if you want to own these businesses.
Tracking corporate news and results also helps you to learn about the business and understand its risks.
It’s important to have a holistic understanding of a business to enable you to decide which businesses you prefer to others.
Remember that this watchlist of stocks can change and evolve over time in line with your changing circumstances and investment objectives.
Always keep cash handy
Armed with this watchlist, you can then slowly allocate your money into some of these stocks.
As there is no best time to purchase these names, you should always keep some cash handy to take advantage of better opportunities should they arise.
A sudden market fall could open up attractive chances to deploy more of your funds.
Dividends that you receive from your investments should also be regularly compounded to slowly and steadily grow your passive income stream.
Get Smart: Pace your purchases
The conclusion is clear.
There is no single best time to purchase stocks as it’s futile to try timing the market.
Instead, the next best thing you can do is to shortlist stocks that you want to own and then start buying them slowly.
By pacing your purchases, you can slowly accumulate positions in your preferred stocks while leaving room to increase your stakes should there be a market drop.
The regular dividends you receive also act as a passive flow of income that helps to increase your cash balance to provide you with more ammunition for purchases.
By rinsing and repeating this cycle, you can slowly compound your way to financial freedom and set yourself up for a comfortable retirement.
If you’re nervous, confused, or worried about buying your first stock, then our latest beginner’s guide to investing can help. It’s easy to read yet packed with valuable insights. Download it for free today, and buy your first stock in the next few hours. Click here to get started.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclosure: Royston Yang owns shares of DBS Group and VICOM.
