It’s natural to assume that if you are buying shares with a 5-10 year view, for example, then you don’t really need to worry about the timing of your initial entry point. However this isn’t actually the case, as I’m about to explain.
The fact is that timing is everything when it comes to stock market investing. Of course a small difference in the share price isn’t that significant if you are holding on to shares for several years, but nevertheless there are still bigger issues to worry about.
For example if you are investing in mid or large-cap stocks, then you need to think about the wider stock market index. Anyone can pick out the most profitable market-leading companies on the stock market that continue to boost both their dividends and their earnings each year. However if you invest in one of these companies at a time when the major stock market index is overbought and it subsequently heads lower, you can be sure that your company’s share price will be dragged down as well.
It’s generally best to attack the markets when the wider stock market indices have been massively oversold. It’s not always easy to call a bottom of course, but when the average P/E ratio for a particular index is very low, you should think about re-entering the markets. You should find that you can make money in the long run by investing in almost any major company when the stock markets are so cheap, but I personally would recommend that you look for strong companies with good earnings and dividend projections for the next few years, just to be on the safe side.
Another reason why timing is important is because there may be times where you invest in a very strong company, but at a time when the sector the company is a part of is either out of favour at the moment and heading downwards, or is at the top of a particular cycle and likely to fall back downwards in the coming years. In either case you should wait until the sector is relatively low and likely to head higher in the coming years based on anticipated demand and future forecasts.
The point is that if you invest in good quality companies when either the sector or the wider stock market is oversold, you can generate some very healthy long-term profits. As I said at the start of this article, timing is everything.
Article Source: Articles Engine