Buying On Bad News
By admin | Thursday June 10, 2010 10:24 am
The news of dropping stock market isn’t quite thrilling for investors until and unless he invests in a down market. However, but a dropping market isn’t necessarily a bad thing. Down markets present a perfect buying condition.
Turn Bad News to Your Favor
Even the best industries, companies and sectors may suffer losses. An investor with apt knowledge about stock market can get himself involved in this turbulent market and buy shares of these underdogs at a very little price.
Now the question that arises is how will you know which companies are undervalued gems and which are the permanent losers. However, here are some factors that you should consider while determining over the fact that whether you must invest the money or save them in cash.
Is it a short term or long term problem?
You need to be very careful while investing in a company. You shouldn’t run just after a company because everyone is running after it. No matter even if the company’s share prices have been cut down by seventy five percent, if buying the share doesn’t constitute a good investment, don’t go for it. Many company shares are not worth buying at even a lower price. Trashes are always regarded as trash, no matter how much you pay for them.
For instance, at the time of Savings and Loan crisis, bank stocks had a steep fall. An investor purchasing shares of such banks were mocked and scorned by people. Simultaneously, many firmly established and secured firms were also hit hard like the banks. At some point of time, those that relied on analytical judgment by buying the shares in the banks found their portfolios in a much better condition.
Can suitable market capitalization measures improve the business endeavor?
When you are looking for under valued companies, always show interest on large market leading firms rather than the smaller ones. At the time of recovery, for instance, Wal-Mart is expected to recover quickly than any small specialty retailer.
How is the track record of the management—good or bad?
Future performance of a company is known best by its past results. Great managements normally produce great results for everyone involved. If the company faces problems for consecutive years while the sector in which it operates prospers, it’s likely that the management hasn’t worked properly. So, in such cases it would be better for you to ignore the empty promises of the executives who’s interest is only to keep their jobs.
Do you have enough patience to sustain the troubles occurring in the company?
The market will always recognize a good company. Anything might happen in the short run. In fact nothing can stop the under valuated stock from a significant fall in price. You must have the patience to wait for the result of your wise investing, no matter whether it takes few weeks, few months or even few years.
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