Stories by Chinenye Anuforo

While there is no sure way of determining when to buy and sell stocks, several ideas and methodologies used by reputable investors all over the world can come in handy. The method you use, of course, depends on whether you are a value or growth investor as well as your investment principle.

Some investors like to buy stocks when the companies release groundbreaking products that are strong enough to change the way people consume competing products or basically change the way they consume. Companies like this always show a knack to be on top for years, which often translates to higher share prices.

A buy sign will light up for some investors when a company releases periodic results that have double digit revenue and earnings growth. For example, a company that continues to grow revenues at a rate of above 10 per cent compounded annual growth rate is a strong candidate for a buy. The idea is that such companies, even when they initially declare losses, will at the end stabilise operational cost with increasing revenues soon turning them into giant profit and cash making machines.

Warren Buffet famously buys stocks when the share price is trading below its intrinsic values. An intrinsic value of a stock is basically the true value investors place on a stock. While what makes up an intrinsic value is varying and often subjective, the bottom line is to buy stocks when they are trading below what you perceive to be its true value in the hope that soon other investors will realise and then presenting you with an upside when the price increases.

A stock trading below its book value may also be a strong candidate for a buy. However, this may be risky as stocks that trade below their book values could be for a number of negative reasons. But when a stock is trading below its book value and still records profit and revenue growth, it may just be a sign that the stock is undervalued and overlooked for reasons other than its fundamentals.

Investors also like stocks that pay a constant dividend. They place a premium on these stocks on an average for the dividend paid. It is therefore more likely that a dividend paying stock that increases year on year will generate growth in its value.

Related News

Investors also like to place emphasis on stocks that are both market leaders in their sectors. It is however important to focus on stocks that not only lead in terms of market capitalization but on revenue and profitability share.

A good time to buy may also be when prices are going up and volume is increasing. It is a method often used by market speculators as they opine prices will continue to rise.

When to sell stocks

A sell mandate is often flashed when a company declares results that is below investor expectations. However, it is also important to review the results to establish if the drop is a one-off event. A drop in earnings growth for consecutive quarters for example is a sign of a stock losing market share which may soon translate to loss in value.

You may also consider selling a stock when the share performance falls below your expectation. A good investor should be guided by an investing philosophy which also includes expectation on a stock’s value appreciation over time.

For those investing as speculators a good time to sell a stock is also when the stock has attained a new high.