We are constantly seeking the right time to invest our money. This is, so that we get to maximise our returns in the future. When you read the papers or tabloids, there will be countless ads calling you to invest. If property investment is the thing, you jump. If the stock market is doing well, you jump.
However, the timing is all that matters. You may have read countless books on Warren Buffett on how he chooses to hold a certain investment for long periods of time. Preferably forever. The difference between him and you can never be more distinct. Questions you should ask yourself would be:
1. Do I have the holding power, ( e g: cash)should might investment turn negative.
2. Have I chosen the right company, industry or country?
3. When do I exit or rebalance my portfolio to take advantage of other opportunities?
If you have invested in property in 1997, it would have taken you at least 13 years just to break even, which is now. You would have bought it at a high price. In investment terms, you’re buying the high.
Similarly, if you have bought stock and shares at the height of the economic boom in 2007, chances are, you might be in a loss right now figuring out the best time to get out.
Do you wish you could know a better way on when to invest in anything?
A simple rule adopted by Warren Buffett (the world’s richest Investor) is,
” be greedy when others are fearful and be fearful when others are greedy “.
As long as you do not follow the herd, the chances of exposing yourself to risk is greatly reduced. You sell properties at the high. You buy when property prices are low. It is common sense. Unfortunately, it’s not so common anymore. Now, people are rushing to bid for the best property sites. There’s nothing wrong with that if you are in it for the long term. However, taking your time and having a relook at your investment objectives is a sure-fire way to lead you to investing success.
What professional investors do to the stock market is different from the rest. They buy the low. That means they buy when others are in sheer panic. They buy when the economy is gloomy. They buy when everything is at a bargain. A rule of thumb is to look at the P/E ratio of stocks and indices. A P/E ratio is a n abbreviation of price-to-earnings ratio. When you look at a particular stock listing, look out for this number. Anything that is well below 15 is worth buying. That does not mean that you take into account only that and it will start giving you a fortune. What I am saying here is that it gives you a gauge on how undervalued the company or index is. As at January to March 2009,the P/E ratios of most companies were around 6-8.That’s greatly undervalued!
Stock indices like the Dow Jones Industrial index, S&P 500, Nasdaq, STI and many others were well below 15.
If you were to put your money during this times, you would have made at least a 40% gain on your investments in less than a year. For your information, at the height of the economic boom in 2007,most companies were having P/E ratios of around 60!
Definitely not a good time to buy but a good time to sell. Whatever goes up, will eventually come down. Therefore when the market goes down, we want to know when it is really an opportunity to invest. If you wait for a good time for the opportunity to present itself, your returns will be spectacular rather than modest.
So now, you know the very basic thing to look out for before you invest. As my teacher once told me, “never buy the high, never sell the low”.
The P/E ratios on average at the point of writing is about 20.Then again, it still is an opportunity depending on where you’re investing in. If you remember the pointers, you will know what needs to happen before you can pounce on the opportunity.