Investing > When to Buy Stocks

When to Buy Stocks

Knowing when to buy stocks isn’t a matter of gut-feeling—but the earnings it can produce is!

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Updated July 08, 2021

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Quick question:

Has anyone ever told you that the best time to buy stocks is now? ⌚️

It’s true to a large degree, at least for traditional, buy-and-hold investing—but if you know what to look for and exercise just a little patience, you can buy stocks at much better prices. However, if you’re a beginner, you simply don’t know know where—or when—to look for such opportunities (spoiler alert: that’s where this guide comes in).

We’re not talking about risky ventures like timing the market or making use of short-term fluctuations here. This isn’t a guide for day traders strictly speaking—rather, we’ll focus on teaching you how to spot certain market conditions that can make investing much more affordable.

The issue of when to buy stocks basically boils down to two things—researching stocks and being aware of the current market conditions. Both of these skills take practice—but with a couple of simple pointers, you’ll soon find that it isn’t rocket science. 👨‍🔬

Knowing when to buy stocks will broaden your investment horizons, help save you money, and give you new confidence as an investor. Now more than ever, young people are flocking to the stock market—and that recent upsurge in activity will bring about plenty of good opportunities. The stock market might seem terribly complicated and impossible to predict—but as you’ll soon see, it’s certainly not impossible.

What you’ll learn
  • Logic of Buying and Selling Stocks
  • Knowing When to Buy a Stock
  • Key Indicators for Buying Stocks
  • Best Time of Day to Buy Stocks
  • When to Buy in a Recession
  • When to Not Buy a Stock
  • When to Hold a Stock
  • Final Thoughts
  • FAQs
  • Get Started with a Broker

The Logic of Buying and Selling Stocks 🧠

We’re all quite aware that investing in the stock market can be risky. The next logical question, of course, is this—is investing in stocks worth it?

The answer is a resounding yes. Although there are risks associated with investing in the stock market, even so, it is the best way to safeguard your money and secure profits. Put simply, savings accounts and other methods of investing offer far lower returns—so low that it more or less isn’t worth it to keep your money in this way.

In fact, investing in stocks is more or less the only surefire way to protect your money from a constant mechanism that makes it worth less year after year—inflation.  The universally-dreaded force of  inflation is one the rise, making savings accounts steadily less potent month by month.

But don’t worry, the average returns from the S&P 500 have outpaced inflation—and remember, we’re talking about average returns here. This average is what your average investor expects to receive every year over the long term, so it is hardly a tall order.

Stocks are bought and sold in order to earn money. The underlying logic is quite simple—you buy a stock for a certain price, wait for the price to go up, and then you sell it and keep the difference. This is commonly referred to as buying low and selling high.

buying low and selling high
The very basic concept of buying low and selling high. Image by TradingView.

However, it isn’t the only method of earning money on the stock market. Some investors prefer the comfort that is provided by dividends—small, regular payments that certain companies pay out to shareholders.

All of this sounds simple enough, but it’s a little more complicated in practice—to pull this off successfully requires education, research, and another factor that we’ll be focusing on today—timing.

How to Know When to Buy a Stock ⏰

Knowing when to buy a stock depends chiefly on two things—researching the stock and knowing the current market conditions.

Researching stocks is an essential skill—if you want to have a good idea of what a business is actually like, you’re going to have to familiarize yourself with the tenets of technical analysis, as well as fundamental analysis. But it doesn’t end there—to truly make use of that information, you’re going to have to learn how to read a stock chart and analyze the information available to you.

Thankfully, a lot of the legwork of researching stocks is made easier by stock brokers. Nowadays, brokers offer user-friendly and customizable platforms, a lot of educational content, and the leading stock trading brokerages also offer powerful charting and research tools—all in all, researching individual stocks is hardly quantum physics in this day and age.

However, market conditions are a bit trickier. If the market is currently in a downturn, you might be able to purchase stocks for a cheaper price—but you run the risk of losing your investment, or having to wait a long time until it becomes profitable.

In most cases, at least as a beginner, you should buy stocks when the market is in an uptrend and when the stock charts show increased trading volume and volatility. Interpreting stock charts properly takes a bit of practice—but that knowledge is essential in the long run.

The Best Times to Buy Stocks ⌚️

Generally speaking, the best time to invest in stocks is right now. However, there are certain periods and events that can make stock prices fall quite a bit—but without affecting the worth of the underlying businesses.

These are the best times to buy stocks—when these conditions are met, you can end up paying far less for stocks than you normally would, so it’s worth it to keep an eye out for them.

When the Market is Undervalued 📉

Ultimately, the price of a stock depends on what people are prepared to pay for it. This can be based on current metrics and performance or on how people anticipate the businesses will perform in the future, but the gist of it is always the same.

However, the market isn’t a stable thing by any stretch of the imagination. Fluctuations happen, and so do recessions—and, what’s most important, crashes.

When crashes occur, people jump ship—they try to do the “rational” thing by selling their investments before they tank even further, but this always leads to a panicked frenzy that is quite irrational.

The fact of the matter is, if you picked good stocks, they’re most likely going to survive the crash. Their value will return to what it was, and will even surpass the old highs in time—some stocks even increase in value during recessions. But people are skittish when downturns happen.

When all is said and done, and the dust settles, after a crash the market is generally undervalued. You can buy stocks in plenty of companies for a price that couldn’t be imagined a few months ago.

benefit of buying undervalued stocks
The benefit of buying undervalued stocks after a crash. Image by TradingView.

While they are terrible events with far-reaching consequences, large drops in the stock market offer plenty of opportunities to buy stocks at bargain prices. It still requires research, and you’ll have to figure out what companies will fare the best in upcoming years—but make no mistake, when the market is undervalued, it’s time to buy some stocks.

When the Market is Geared for the Stock You Want 💡

The events and conditions of the real world can make the market geared toward particular industries or sectors to a large degree—and this is a treasure trove of opportunities.

That isn’t shocking, and it’s quite common sense—but let us illustrate with an actual example so you can get an idea of how significant it can be. When the stock market crash caused by the Coronavirus happened, Netflix was trading at around $330. Zoom was trading at roughly $115.

Both of these stocks belong to a category of companies that prospered due to lockdowns and Covid-19 restrictions. Just a year later, Netflix jumped to $530, and Zoom went to $340—naturally, the pandemic is a perfect time to catch you on your favourite shows and chat online.

These aren’t the only two examples. IT services, online education, food delivery, and online shopping are just some of the areas that benefited from the outbreak. If you had bought into those sectors when everything began, you’d be looking at some pretty amazing returns.

The Covid-19 pandemic is an extreme, unprecedented event—and as such, it’s also an extreme example. But similar moves can occur due to smaller events as well.  Inspired by recent events, let’s imagine a hypothetical future election in the U.S. Let’s say it brings about a series of far-reaching decisions.

Infrastructure projects? Construction companies will likely shoot up. Green energy and removing fossil fuel subsidies? Green investments will go through the roof, but energy companies will have some bad quarters ahead of them.

Paying attention to current events can give you a good idea of where the market might be headed—as long as you combine that approach with metrics and research. Right now, the real question is—what stocks will do good when the economy reopens?

When the Stock is Undervalued 🔎

One of the most common strategies for investing is finding undervalued stocks. These are stocks that generally belong to well-established businesses, but that are trading at prices that don’t reflect the true value of the underlying company.

Eventually, in time, because the underlying business is sound, the stock price will correct itself—meaning that you’ll be free to pocket the difference as profit. But knowing how to find an undervalued stock is a skill, and like any other skill, it takes some knowing how.

Going about things this way relies almost purely on metrics. To find an undervalued stock, you’re going to have to do some research—beginning with a company’s price-to-earnings ratio. This is a metric that measures a company’s share price and its earnings per share.

But it isn’t that simple—no one single metric can give you a complete look at a company. You’re also going to have to factor in things such as a company’s price/earnings to growth ratio, their debt-to-equity ratio, and return on equity. This might sound overwhelming, and we sympathize—the technical jargon doesn’t make this stuff appear accessible.

However, knowing how to analyze stocks this way is a skill that will pay for itself many times over in the years to come, and once you get into it, this stuff can actually be quite fun—not to mention that it allows you have a far greater understanding of how businesses, and the economy in general function.

Finding undervalued stocks isn’t just about metrics, however. The metrics are important, yes—but ask yourself if you think the company will continue to grow and expand in the coming years. If the answer is yes, you’ve just found an undervalued stock that you believe in—and that’s a stock that you should purchase.

When Your Research is on Point 📚

Buying stocks isn’t a game of chance—at least it shouldn’t be. Knowing how to properly research stocks is a fundamental skill and one that is essential if you want to find success as an investor.

Let’s look at a recent example—one that’s been generating headlines for quite a while now. It’s impossible to miss all the talk surrounding the Gamestop short squeeze. Although a lot of investors piled on when news broke—and their decisions were not driven by research—the man that got the ball rolling did so because he did his homework.

Keith Gill, a financial analyst and retail investor, is the man whose Reddit posts inspired the GME frenzy. But his choice to invest in Gamestop wasn’t a spur-of-the-moment decision—Gill had been investing in Gamestop since 2019, and had released plenty of videos where he uses both technical and fundamental analysis to justify his rationale.

Gill claimed that despite lackluster performance in the last couple of years, Gamestop was extremely undervalued by investors—and he made a bet that the retailer would survive this rough patch and weather the storm. When he noticed that hedge funds had recklessly shorted GME, he also ventured into buying options.

Keith Gill has seen enormous returns on his investments. And while the GME situation is something unique and we probably won’t see anything similar for years to come, the point stands—research matters, and it will always matter.

Before Everyone Else 🏃‍♂️💨

Stocks are notoriously volatile when it comes to news. To be more precise, investors are notoriously trigger-happy when news regarding a business comes out—if it is good, people are likely to rush in, and if it’s bad, they’re likely to panic sell.

We’ve already covered how the panic selling of others can benefit you, but that’s a long-term strategy. The inverse of that is getting in on the action before everyone else does—and that often ends up being a much more short-term approach.

However, this requires keeping your ear to the ground and paying a lot of attention. If you just happen to come across a piece of news that is likely to increase investor confidence in a certain company you’re already late to the party. You have to focus on specific dates for particular companies that you already have an interest in—product releases, earnings reports, annual meetings, and the like. 

You also have to actively monitor the news, and act quickly when information appears. Of course, all of this is risky—if you’re too optimistic and the market at large doesn’t share your sentiment, you’re going to lose money.

These approaches aren’t used by investors—they’re used by traders, and in particular, day traders and news traders. These are all perfectly legitimate ways of making money—but they require a lot of practice and knowledge, so we’d counsel beginners to stick to buy-and-hold investing—at least until you get your bearings.

When a Company Shows Great Promise 🚀

You can also invest in a relatively unknown company that you believe shows great promise for the future—but this approach comes with a couple of caveats. First of all, it’s hard to predict who the next industry leaders will be—Netflix, Amazon, and Tesla all seem perfectly sound investment choices in hindsight, but it didn’t always appear so.

Investing in small or new companies offers you the potential to make huge profits—but it is risky at the same time. If things don’t work out the way you predicted they would, you might end up losing your entire investment.

Since you can’t use any of the metrics that you use to gauge established businesses, you’re going to have to base your decision on something else. This can be one of two things, or both—innovative products and strong leadership.

When Jack Dorsey or Elon Musk start a new business, you know that there’s some potential there. If you can’t rely on the strength of a business’s leadership, you’re going to have to base your decision on their product—but if you’re unfamiliar with the industry in question, that can be quite tricky.

The situation with trading penny stocks is quite similar—they exhibit high volatility, offer a chance for large profits, but there’s a lot of risks involved—and penny stocks are notorious because of pump-and-dump schemes. These approaches are much more uncertain than buying undervalued stocks of established companies. 

In fact, buying stocks in new businesses should never be an important part of your strategy—you can do it, but it should be relegated to the side. When you find a good opportunity, by all means—take it, but this approach is far too risky for long-term investing.

Best Time of the Day to Buy Stocks ⌚️

Up to this point, we’ve approached the question of when to buy stocks in a way that doesn’t involve timing. Instead of that, we focused on what conditions should be met before you decide to buy a stock.

However, timing can also be important. For short-term traders, it is absolutely essential to know when to buy and sell, but even long-term buy-and-hold investors can benefit from this knowledge. So, before we move on, let’s deal with the question of timing.

The NYSE is open from 9:30 AM to 4 PM eastern time on the weekdays. Based on data available data, we can draw a couple of actionable conclusions.

The largest amount of volume and volatility can be found in the first hour of trading—from 9:30 AM to 10:30 AM. That increased activity tapers off, and stabilizes around 11:30 AM, remaining constant until the last hour of the trading day.

The first hour of trading is generally considered the best time to buy and sell stocks—volatility and volume are at their highest points, and if you know where to look, you can find a lot of opportunities. Knowing how to get the timing right is of the essence if you want to learn how to trade stocks.

trading trends in the stock market
Intraday trading trends in the stock market. Image by TradingView.

However, it should be noted that this does require some experience—if you’re a long-term investor, buying stocks in the middle of the trading day might be a safer option.

So, what about the days of the week? Monday generally sees stocks drop in price—a result of the news that came out over the weekend. For anyone looking to buy stocks, this is good news—conversely, selling stocks on Friday is also a wise decision—at least for short-term traders.

When to Buy Stocks During a Recession 📉

Every now and again, a recession comes along—and if it wasn’t already stressful enough, watching the value of your portfolio drop will only make it worse.

But recessions aren’t as cataclysmic for investors as you might’ve been led to believe. In fact, you shouldn’t huddle up and retreat from investing when a recession hits—like any big change in the markets, a recession is a time of great opportunity.

Buying stocks in the middle of an economic downturn might seem counterintuitive, but it can be quite a smart play—one that can bring you plenty of profits. So, what should you invest in during times of recession?

The answer is quite simple—focus on the sectors that are the least likely to be affected. Even in the midst of a recession, people still need food, consumer goods, household items, electricity, and healthcare

These aren’t the only sectors that don’t feel the effects of recessions so keenly—but they are the most notable. For example, iShares Gold Trust (IAU) did great during the COVID-19 crash in March 2020 while the rest of the market was taking a nosedive.

iShares Gold Trust
iShares Gold Trust maintaining a steady growth amid a crash. Image by TradingView.

Investing in these areas at the beginning of a recession is a great way to make money. These sectors might not perform as well during times of economic booms, but they’re a great way to safeguard your investments when things go south.

Apart from that, having a well-developed dividend investment strategy is also a good way to shoulder the weight of a recession without struggling too much. 

The passive income that dividend investing gives you can be a valuable lifeline when times are tough—so focus on companies that have low debt-to-equity ratios and that have raised their dividends for many years in a row.

When You Should Not Buy a Stock ⚠️

In this guide, we’ve focused primarily on when you should buy a stock—but the reverse is just as important. Even the most rational among us don’t always behave in a sensible way—so it’s important to know when you should avoid buying a stock.

First and foremost, if you don’t believe in the company, don’t buy its stock. Analysis and research matter, but gut feeling shouldn’t be discounted either. Even if all the numbers show a promising future, if you believe for any reason—be it media coverage, changes in management, or simply lack of faith—that the company won’t perform well, then don’t buy their stock.

If you can find a better alternative to a stock, go with the better alternative. In economics, this is referred to as opportunity cost. We’ll try to break it down in simple, human language—if stock A will give you a 5% return, and stock B will give you a return of 6%, you effectively pay that 1% difference if you go with the worse option.

If you believe a stock is currently overpriced, don’t buy it. In much the same way as the price of undervalued stocks corrects itself in time, the same holds true for overvalued stocks. Even if the underlying business is sound, if you invest at a time when their stock is overpriced, it could take way too long for you to actually profit from that purchase.

If you’ve devised a plan for diversification that requires a specific asset allocation, stick with it. That means that at a certain point, you can’t buy more stocks—that is of course unless you sell some to keep your asset allocation in line.

When You Should Hold a Stock 🗃

We’ve discussed when you should and when you shouldn’t buy a stock—but knowing when you should hold it is just as important. Many of the most popular investment strategies today rely on a buy-and-hold approach—which involves holding stocks for many years on end.

In fact, most retirement funds and money managers also apply this strategy. And it’s easy to see why—holding stocks for a long time allows you to pay less tax on them. The long-term capital gains tax is much lower than new short-term capital gains tax—varying from 0% to 20%, depending on your income tax bracket.

So, what are the telltale signs that you should hold a stock? It all boils down to if you expect that the underlying business will continue to see growth in the future. If you believe they will continue on a successful trajectory, you should hold their stock.

But keep in mind, although there is a bit of intuition involved, this isn’t a guessing game. Getting a good idea of where a business is headed requires dedication—reading earnings reports, following the news surrounding a company, paying attention to their debt-to-equity ratio, as well as many other metrics.

To look at this issue another way, think of it as a continuation of a process that you’ve already done—researching stocks. The only difference is that now you’re keeping an eye on them—you might not have to revisit them in as much detail, but you should do it regularly.

If you’ve done things the right way the first time around, barring any unexpected downturns, you should aim to hold quality stocks for at least three to five years.

💡 What about selling? Learn about the indications for when a stock should be sold.

Wrapping Up: Keep an Eye on Your Stocks 👀

On a final note, it’s very important to note that keeping an eye on your stocks is crucial. The easiest way to do this is by using your stock brokerage. Brokerage platforms offer a lot of tools that make it easy to stay aware of the goings-on of a particular stock. 

Advanced charting tools give you the ability to perform an in-depth analysis of a stock’s performance, while watchlists allow you to easily monitor stocks that you find interesting. On top of that, a lot of brokerages also offer research, potentially giving you leads on what to invest in.

Brokerage platforms also tend to offer news feeds, which are an important part of the equation—no stock is immune to the news. 

And while these news feeds are handy, if you’re interested in a particular stock, you should put in the effort to be extra aware of the press surrounding the company. This entails attending annual meetings, paying attention to changes in management, and knowing your way around an earnings report.

One of the things that make keeping your eye on a stock easy nowadays is the absolute ubiquity of smartphones. We’ve all got one—and brokerages devote significant resources to developing sleek, well-designed, and responsive mobile apps for stock trading that allow you to quickly check how a stock is doing at a moment’s notice.

But it doesn’t have to end with your brokerage platform. You can enlist additional help by thinking outside the box—the investment space offers plenty of helpful stock analysis software which allows you to conduct in-depth research, and which will put plenty of new investment opportunities on your radar.

When to Buy Stocks: FAQs

  • How Do I Begin to Buy Stocks?

    To begin to buy stocks, set aside some capital, open a brokerage account, and read up on investing. Once you’ve decided on an investment strategy, the actual process of buying stocks through a brokerage is quite simple.

  • Where Can I Buy Stocks Online?

    You can buy stocks online by signing up with a stockbroker. A vast majority of stockbrokers offer an online platform or a smartphone app.

  • What are the Best Stocks to Buy for Beginners?

    Beginners should focus on purchasing stable yet undervalued stocks. This approach allows you to gain some hands-on experience without exposing you to too much risk.

  • What Stocks Should You Buy During Coronavirus?

    Industries like healthcare, online shopping, education, and food delivery have seen massive gains during the Coronavirus pandemic. However, the more important question is what industries will see growth after the end of the pandemic.

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