Timing a stock investment is one of the most underrated skills an investor must have to be successful. Much attention is always given to finding the right stock, but much less is given to timing the purchase of that stock. Many investors, in their excitement to invest in a great fundamentally solid stock, leave money on the table by improperly timing their stock purchase. This article will illustrate a few ways in which it really makes a difference to consider the timing aspect more than you already have been doing.
Waiting for the Market to Fit Your Narrative
Imagine this scenario: you do hours of research on a particularly company, you check out the cash flow statements and like what you see, you look at the recent insider transactions and see no negative signs. All in all, the stock looks great. Boy, would you like to own it. It can be tempting to just pull the trigger and buy into the company regardless of where it is positioned technically on the market. While value investors are tought not to speculate by obsessing over market rallies and declines, timing is still important. Watch that 52 week high/low metric. If your desired company is dwelling around the low end, go ahead and make the purchase before the stock starts to rally. And that is why it is a good stock, right? If it is fundamentally sound and has a good market narrative, it is only a matter of time before the stock starts heading north. Investing at the wrong time, when a stock is near its high, means that you may be waiting significantly longer for that rally to happen. Since time is an important ingredient to a successful investment, don’t waste it!
Partial Sell Off After Stock Rally
Partially selling off a position in a stock is a great way to lock in gains while also allowing you to see greater appreciation in value if the stock continues its rally. Again, here is an example where paying attention to the timing can net you extra dollars but also potentially insure you against losses. It is easy to invest in a company and then simply forget about it for months at a time, but by taking just a little bit of a daily interest in a stock, you can make some additional smart gains. Similarly, consider buying additional stock if the price dips below where you originally purchased it at. If you are confident in the fundamental story of the stock, you really can’t go wrong here.
Always ask yourself, do I still want to own this stock? Do this simple exercise on a weekly or monthly basis. If you find that a stock has lost its charm, do not simply dump it immediately. Wait for a good day of trading on the market or some postive news to spur the stock higher. Sometimes the overall market climate can push a sub-par pick higher so the opportunity will almost always be there to cash out at a higher price. A good way to easily do this is to put in a limit order for a certain price threshold that you would be happy taking your profits at.
Best of luck and happy investing!