Is it possible to pick the best time to buy and sell shares on the stock market?
The stock market delivers or strips value from shares because traders do not synchronise their views on when to get the best value out of a trade. So, picking the ‘perfect time’ to buy or sell shares will vary among investors, depending on the strategy they choose.
Share traders subscribe to various schools of thought on when to duck in and out of the market. There are:
- Those who sell, sell, sell when the market is dropping in order to minimise further losses
- Those who sit tight, riding out the volatility in the belief that value will eventually return, or they will hold because they are in it for the long term
- Cashed-up types may buy up stocks whose value is plummeting because they see them as bargains that one day will regain their former glory
- Those who ‘take the profit’; that is, sell when they judge a share price has firmed so much it is unlikely to grow any further.
Short-sellers (those waiting for a stock to go ex-dividend), day traders, chartists and even those relying on computer algorithms to automatically deal in shares will all have their individual method of calculating their timing.
It is virtually impossible if you are not experienced to know exactly when to trade. On its Choosing Shares to Buy web page, the Australian Securities and Investments Commission warns that an understanding of economic and market fluctuations is a key starting point.
Online broking sites may be convenient, but if you are new to trading, it is still worthwhile to subscribe to a formal broking firm whose analysts publish guidance. They read and interpret all sorts of data produced by companies, often have a direct line to their chief executives and a good feel for what economic factors are influencing the market at a given time.
The financial pages of newspapers and many specialist websites publish the opinions of stock market experts and some of them write recommendations for dealing in specific stocks.
Here is a round-up of what some of the most popular investment experts have to say ‘off-the-cuff’ about share market plays:
- Scott Pape, The Barefoot Investor: You need to ask yourself this question: “Knowing what I know now, would I buy (these) shares today?” If you wouldn’t, then sell them. If you would, keep them. It’s that simple.
- Marcus Padley, Marcus Today: Asked by a reader when they should sell shares, he responded: "When you find yourself celebrating the rise, press the button."
- Warren Buffett, Berkshire Hathaway: We continue to make more money when snoring than when active. … You simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.
- Olivia Engel, State Street Global Advisers: An award-winning stock picker, whose quantitative fund management style relies on computer modelling, Ms Engel explained: "We do not look into the eyes of company executives and ask ourselves if we believe they can turn the company around, or deliver on their promises … the numbers do not lie … we are simply trying to codify investment intuition into something we can calculate objectively.”
The Australian Securities Exchange runs seasonal share market games throughout the year to teach novice investors some tricks of the trade using virtual money. It is free to play, and outperformers can win cash prizes of up to $2000. To register for the next season, which kicks off in February, visit: game.asx.org.au.
Have you ever made a killing on the share market and, if so, what strategy did you use? Do you believe there is a right or wrong way to play the stock market? Care to share your stock market secrets?