Tips for Buying Stocks

There are no hard and fast rules about the proper timing of investment decision. The art of buying and selling shares at the right time cannot really be reduced to any formula it can be picked up only through personal experience. However, we give below some suggestions, which should be useful in deciding when to buy and sell:

1. Don't buy a share immediately after 'a' steep rise in its price. A steep rise is usually followed by a steep fall; the steeper the rise, the greater the subsequent fall. When share prices fall, they usually retrace about one third to two thirds of the price range covered by the earlier rise, Thus, if the price of a share rises from Rs. 40 to 55, then in the subsequent fall its price will probably drop to about Rs. 45 to Rs 50 per share. And that is the appropriate time for buying it, i.e. after its price has fallen in reaction to the earlier rise.

2. If you want to sell a share, do so immediately after a steep rise in its price. The chances are that you will then be selling at around one of its peaks, which it may not touch again for quite some time.

3. Don't sell a share immediately after a steep fall in its prices. Chances are that the share prices will rally by recovering around one third to two third of the lost ground. The appropriate time to sell it would be during the ensuing rally when you can get a better price.

4. A sharp fall in prices offers an opportunity for buying, provided you arc confident that the fall in prices is purely temporary and that the future outlook of the company is promising enough to ensure that the subsequent rise in price will go far beyond the level from which it earlier fell.

5. If you have a promising growth share in mind the best time to buy it is when the public loses interest in the share and when a considerable period of time has passed since it was last in the news. If you buy a share at a time when it is basking in the full glare of publicity, then the chances are that you will be picking it up at, or around, one of its peak prices. Try to pick up a share in anticipation of good news rather than after the good news has become widely known. Conversely, the best time to sell is either after some widely publicised good news, or when the share is the centre of favourable public attention.

6. Share prices usually record a sharp rise just before any expansion project of a company becomes operational. If you are a buyer, than you should do your buying around a month or so before this happens. On the other hand, if you are a seller you should sell a couple of months after the plant goes into commercial production so that you can take full advantage of that price rise.

7. Companies often issue press releases about their expansion plans, diversification plans, plans to issue better selling new products, rising order book position and proposals to issue bonus shares, rights shares, rights convertible debentures, etc. News of this nature has a bullish effect on share prices. Therefore if you want to buy shares in such a company, do not delay placing a buy order with your broker. Ideally, it would be best if you bought the shares on the same day the news item first appears in newspapers. The same rule should be followed when companies release their half yearly working results to the press indicating improved performance.


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