When to buy stocks?

18th Nov 2009 by Tobias John Sterling

The best time to buy stocks is just before they go up hugely. And how do you know when that is? Well, unless you're trading on inside information (which is illegal), you don't. Everyone has access to more or less the same information about the situation or the fortunes of the companies whose stocks are traded on the stock market, so if you knew when a company's stocks were about to go up, then so would everyone else, and they would've already bought the stock in anticipation of the rise, which would itself have pushed the stock price up to its 'true value,' making it impossible for you to profit. This idea that markets have already priced in all available information has a name: the 'efficient market hypothesis'. Of course, it's also possible that investors in a stock market (taken as a single entity) aren't as rational or well-informed as the efficient market hypothesis makes out. There is strong evidence to suggest that stock market investors are in fact prone to buying and selling stocks based entirely on emotions such as exuberance and fear as opposed to on information about the companies whose fortunes they represent. It MIGHT be possible to take advantage of this irrationality -- buying when others are selling, then selling when others are buying -- but like any stock-buying strategy, timing is everything, and no strategy is guaranteed to work.

This answer is the subjective opinion of the writer and not of FinancialAdvisory.com