Is it better to buy stock when it’s low? There may be a better question to ask about stock prices.
Is it better to buy stock when it’s low? This is the eternal question for investors. It’s the same question Plato and Socrates asked. Sort of. Their version was something like, “Why are we here?” But ultimately, it’s the same concept. And the answer to our question, like theirs, depends on who’s asking.
In philosophy, the best answer to a question is another question. But not just for the sake of sounding like a three-year-old saying “why” over and over. The reason we ask more questions is for clarification. So is it better to buy stock when it’s low? Let’s ask some questions that will help answer that.
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Is it better to buy stock when it’s low? Here’s the question you should be asking.
We’d all like to buy a stock at a rock-bottom price and watch it climb in value. That’s what we hope for every time we put money into an investment. But there’s a vast difference between a stock that’s cheap and a stock that’s a good value. That doesn’t even take into account what “low” is.
If you could get Apple (AAPL) stock for $50 a share, that would be low (and it would also likely be a great buying opportunity, but that’s another topic). On the other hand, an over-the-counter stock at that same price would be something you should run from. So “low” is relative.
What you really want to know is how much a stock is worth, and what its future look like. That will tell you whether the price is low or not. And is it better to buy a stock when it’s low if it seems like an actual bargain? Maybe.
There are times when a stock, or the entire market, dips. These corrections can be ideal times to buy a stock at a lower price. But even then, you can’t just buy any random stock and expect that stock to rise with the eventual rebound in the broader market. Similarly, if you are investing with small amounts of money, you may be better off diversifying your portfolio rather than dumping most of your money into one or two “low” stocks.
What to look for in low-priced stocks
So buying low can be great for the right investor in the right circumstances. Here are a few things to look for in those low-priced stocks.
- Look for growing annual profits.
- Buy stocks that fell a little, but avoid stocks that took a nosedive.
- Buy stocks that pay dividends.
In fact, it’s not a bad idea to keep some of these stocks on your watch list. Then, instead of fearing another selloff or downturn, you’ll be ready to exploit it if the market gives you a golden opportunity to pick up great stocks at bargain prices. Good companies purchased at great prices in the bowels of a selloff can turn out to be the best investments of a lifetime.
One last thought. We like to find out why a stock is selling at a bargain price. Is the company competing in an industry that is dying? Is the company suffering from a setback caused by an unforeseen problem? The most important question, though, is whether the company’s problem is short-term or long-term and whether management is aware of the problem and taking action to correct it.
So revisiting the original question, is it better to buy stock when it’s low? It certainly can be. Just be sure to do your homework, and know why you’re buying a stock.
What are your thoughts? Do you try to buy stocks when they’re low?