3 Yeses or no investment! Superior investors need a yes from the economy, the market and company or no investment gets made and we keep the money in our pockets.
How do investors know when to buy?
Choices To Make Money Work course 215 lesson 8, answers the question, how do investors know when to buy? At the end of the lesson, links to related content help you learn more.
What you learn:
Learn the 3 key buying indicators superior investors use before investing. Knowing and using these indicators helps you buy in favorable conditions to put more money into your pockets. More importantly, it keeps you from buying when you should wait for better conditions. That keeps your money ready to move when favorable buying puts it to work earning you more!
The economy, market and company must all say yes or we say no to investment!
Before investing we research the facts on the economy as well as the market and company for three layers of useful information. We use that information to tip the odds of investing success in our favor.
Three layers of investing information
1. Look at the economy
2. Look at the market
3. Look at the company
Good research helps produce decisions that give us favorable odds and controls our risks. By doing that to get favorable investment odds, we improve our portfolio performance. That puts us well ahead of bad strategies like averaging down that produce mediocre or poor outcomes.
When the economy continues growing and getting better, odds favor investors.
1. Look at the economy
We begin by looking at the economy. The keys to the big economic picture are trends. 3 leading trends matter the most, jobs, autos or vehicle production and housing. When checking these trends, look at the 3 and 6 month trends.
Media reports always focus on the newest economic figures because they are the news. Traders instantly reacts to such news and stock market pundits spill many words sharing their wisdom and insight. However we can ignore most of the excitement and racket. For investing decisions we can pay little or limited attention to those numbers.
Instead look at longer trends. Short-term the numbers go up and down but the trends are clear. The trend is up, down or sideways. Most times it is up and as long as that remains the case we take these indicators as giving us a buy signal.
All the trends are readily available by using Google. In minutes we can gather this key information. Up is good, down is bad. When all three trends, jobs, auto and housing are positive, the economy is giving us our first definite yes! It is a favorable time to buy!
Up is not forever
When economic facts, not just rumors, go negative, things can change. To check, we follow the trends. Should a trend falter, we can hold off on buying. If all three key economic indicators, jobs, cars and housing turn, we may have good reason to wait or exit the market.
Bad economic events do happen. Declining economic results profoundly affect stock markets. So when we see convincing and negative economic facts, the economy could be saying, it is time to wait or perhaps selling time has come!
Never buy in a panic or sell in a panic
Investors are prudent and deal with facts. Being prudent, wait for a trend to turn negative before selling. Rumors and any pundit or media hand wringing are not facts. Wait until the actual numbers show that we must deal with negative economic news. Most often a bad or poor economic report is an outlier. One or a small number of months do not make a trend. Stay the course until we have facts to deal with. Not always but most times the next report will be positive, and so the positive trend will continue.
However, not always, it could be the start of a down trend. If so, we look further, but when we have the facts we definitely wait, and do not buy more. We do have selling in mind. But investors wait and do not sell.
Filter good and bad stock market noise
The economic news is never all good or all bad. Generally, the economic balance has a favorable tilt, but never gets 100% positive. We can continually consider and judge an unending parade of economic factors and data. When the balance tips to produce negative trends, we can hold or sell. When trends stay positive, stay in the market or buy.
Although it is never all positive, generally speaking, stock market trends move up. When they do, the market and economy are in a generally positive outlook. When that is the case, the first layer of our decision matrix, gives a positive signal. Think of it as being in a period of economic growth. That puts the odds in our favor and gives us a reason to buy.
Consider the up side of down trends
Investors riding quality dividend paying stocks don’t sell in downtrends. Rather, as quality companies continue paying during such times, they see stock prices going on sale! They wait to buy more at the most favorable prices to increase their income returns. Other lessons will more fully explain how superior investors manage to do this well.
2. Look at the market
Secondly, with the economic trend information in hand, we look at the stock market where we are considering making our investment. Stock markets in one region can be good while another area may show less favorable results.
North America, Europe and Asia are all distinct and within each region are more local markets. They differ in offerings, character, issues and circumstances. Every stock market has a global view and reacts to important world events. That makes our task fairly simple.
To use the market as a buying indicator, we just look at the market that interests us. Turmoil, upsets or bad news elsewhere could indicate trouble is on the way but most likely reflects their local or regional issues. Looking at market indicators soon tells if markets are rising, falling or going sideways.
An O.K. or rising market is normal and a positive sign. This happens during periods of economic growth that gets reflected in the market. We can be confident that the trend will continue. That is, the market, like the economy will continue rising until the expansion stops!
As a rule, when trends in the economy has told us yes, we can expect the stock market to also give us a yes! But not always, and not necessarily when we want to buy.
Even during positive stock market trends, price dips and corrections are normal and regular occurrences. Those are opportunities!
Markets dip, correct and fall
Markets only fall by significant amounts and stay down, for good economic reasons. Daily, weekly and monthly gyrations, turbulence, dips and even corrections are normal. When dips and corrections happen, favorable conditions and trends soon return, when the economy continues to expand. During such times, dip and correction recoveries can be brisk.
When the economy is not expanding or when it contracts we want to be more cautious. Continue making contributions to your account but let the cash and any dividends received sit. Superior investors are patient. Wait for the market to settle down.
Like riding favorable waves while surfing or sailing, we benefit and enjoy our ride on market waves. And just as we sail through the dips and troughs at sea, riding through market dips and corrections are opportunities. Think of them as opportunities to buy stocks on sale!
This lets us think of stock market price dips as buying opportunities that lower our costs boosting our total returns!
Positive economy = positive stock markets
There are many economic issues and troubles worldwide but, on balance, most places, most times are economically improving. Most markets, most times show positive up trends. Virtually everywhere, all the time, market noise remains at full volume.
Superior investors learn how to cut through the market noise to hear the key information they seek and use. With positive economic trends we expect but look to confirm, if the market is going up, we have the second indicator telling us yes, it is a time to take a bite, buy and stay in!
Our second layer or look has been positive which confirms that dips and corrections are buying opportunities. We can use them as open doors to larger gains. When positive, this second layer or look tells us that definitely the odds favor us!
Before passing on all other markets keeping a general awareness of them gives us useful information. The international markets provide valuable indicators of economic progress. Or at times, when progress falters. That knowledge raises our awareness of both good and bad factors that could be coming to our economic future.
Why can be the best question
Asking why can teach us much, open doors and eyes and let us meet new ideas. As part of your research on the economy or market, asking why can produce some interesting answers and ideas. Asking Google why a market or economy is rising or falling can expose you to a world of information. Do remember there are many opinions and much misinformation in the world of markets and investing. Sorting through answers can produce useful and even valuable information sources.
Taking a bite of those companies looks like a good place for some money.
3. Look at the specific company
When the economic trends and market tells us yes, we look at the individual investment:
- The economy says yes, while never perfect is favorable and,
- The markets says yes with positive movements,
- The company interesting us makes money, grows and pays dividends.
When in a positive investing environment we can confidently look at specific companies as we seek more money-making winners to ride. Superior investors want established, well-managed, growing, money-making companies that they can understand. And we only buy when we get paid to ride so the company must pay us dividends. When we get a yes on all counts, we are ready to buy!
That third step remains as important as the others. Investing means economy, market and company all say yes, by making sure all give positive signs we control risk and keeps the odds in our favor. All say yes, or we say no!
That positive environment puts us in the mood to take a bite and munch on some shares of good companies that will make our money earn more money! That investing decision comes after completing this important third step process before we buy. We do this every time we consider investing in a specific company or when we want to buy more.
Dips & corrections – the exception!
Profitable The 3 yeses rule helps us buy in favorable conditions. But when markets dip or correct with falling prices, the market does not indicate buy now! Still, when the economy and company continue with yes indications, dips and corrections can be excellent buying opportunities.
The White Top Investor lesson on buying dips fully explains how superior investors profit from buying during dips and corrections. Next time you see media reports of market turmoil think of investors listening to opportunity knocking!
Investors wrap decisions in facts
Making ourselves aware of the big economic picture, the stock market picture and of our individual holdings lets us make good investing choices. Doing our research homework, makes us ready for any contingency.
Then when facts change and some panic, we are able to make good decisions. We can consider buying after others panic! Most importantly, being prepared by doing that homework positions us well to make timely decisions and seize the day when opportunity knocks.
To invest well, we must become and remain aware of the economy, market and the individual company. We must both watch and learn. Finally, we must have ourselves psychologically ready and able to take any needed action.
How do investors know when to buy? Answered!
Knowing how superior investors use 3 key buying indicators helps new investors protect and grow their capital. The 3 basic checks on the economy, markets and prospective investment allows investors to buy in the most favorable circumstances. It teaches a simple way to keep your money safe and available for buying in favorable conditions.
Lesson takeaways,
3 Yeses or no investment:
3 Yeses or no investment gets made keeps money in your pocket until you can buy under favorable circumstances. Superior investors need yeses from the economy, stock market and company you are considering investing in.
- Look at the economy – trends for jobs, cars and housing must be positive. Up is good, down is bad. We need up!
- Look at the market – in the short term stock markets can have volatile but superior investors look longer term. Are markets working their way higher, lower or going sideways? Up or sideways works for us. Hold off buying when trends are down.
- Look at the company – the company must be growing, making money and paying affordable dividends. If yes, buy, if no, pass and look elsewhere.
Other lessons related to:
3 Yeses or no investment
Investors need personal diversification
Tapering groupthink costs investors!
Comments and questions welcome
Email me at [email protected].
Subscribe free and get White Top Investor lessons in your inbox!
Make money work for you by knowing how investors think, feel and act. Learn here The Investor Mind.
White Top Investor lessons, website layout and organization: click here.
Make money work for you
Become a knowledgeable, comfortable and confident investor using White Top Investor lessons. Learn investing one small step at a time at your own pace to become the master of your financial security and independence. White top Investor never sells or shares our email list. Learn more.
Choices To Make Money Work:
Key investing success choices Lesson 215.01
Join exceptional wealth builders Lesson 215.02
Investing time or adviser time? Lesson 215.03
Small investors have advantages Lesson 215.04
4 Successful investor traits Lesson 215.05
Avoid 6 investing sins Lesson 215.06
Investment impatience destroys wealth Lesson 215.07
3 Yeses or no investment Lesson 215.08
Investing fun, interesting and slow Lesson 215.09
Warren Buffett explains gold Lesson 215.10
Next course 215 lesson 9:
Investing fun, interesting and slow
Let’s connect, follow me; Twitter LinkedIn Facebook
Have a prosperous investor day!
Let’s connect, follow me; Twitter LinkedIn Facebook
Share:
3 Yeses or no investment
Buttons below let you share this lesson with family and friends!
Image courtesy: FreeDigitalPhotos.net
Copyright © 2013-19 Bryan Kelly
WhiteTopInvestor.com
