Many of us have heard that the best time to buy stocks is during a stock market crash or during a correction. However, how many can actually put this into practice? The sure way to make money is to buy low and sell high. However, how many people have done the exact opposite? They buy high and plan to sell higher but the stock price tumbles, and they end up selling low due to fear. Buying high and selling low is the surest way to erode wealth.
How to have the emotional stability to buy stocks during a crisis
First, you have to research the company you are buying. Behind every stock price is a company. How does the company generate profits? Where is it operating in? Is it a simple business? Is it a prominent business? Is it a strong brand? Next, you have to assess if the management is honest and competent. Finally, the most important thing you have to know is the right price to buy at. This is essential as it makes sure you don't sell prematurely when there's still room for growth in the company. This takes the emotions out during a crisis.
For example, a company is selling at $2 and has been dropping for the past few months due to market sentiment. You have valued the share at $4. This is a 50% discount. Would you buy it? Of course you would load up on this company as the stock price is screaming "Buy!". On the other hand, someone who does not know the value of the company is going to sell at $3 when the price has been dropping due to fear. He will be cashing out at $3 even though the company's value is at $4. Remember, that behind every stock price is a business with value.
Having conviction allows you to average down
You also have to be convinced and believe in yourself and in the company you have researched. Conviction is paramount as this allows you to buy more of the company during a crash when it's selling at a huge discount. Buying more at a lower price allows you to average your buying price downwards. This is how you buy low, sell high and create wealth. You cannot buy at the absolute lowest but at least you can buy at a low price.
Recessions create new millionaires. During the last financial crisis in 2008-2009, Straits Times reported that the number of millionaires in Singapore increased by 32.7%. Do you want to be like them? If you do, you have to take opportunity and buy when stocks are low and not when they are high. To do that, you need to have emotional stability and that comes when you know the right price to buy at and are convinced with your decision. Take control of your emotions and take charge of your financial destiny!
>By FFN, an avid investor who has completed the Associate Financial Planner course, and who blogs at A Journey Towards Financial Freedom .Posted via
,your guide on how to make more money, save smarter, invest intelligently, and enjoy your money like a pro.
The secret of accumulating wealth over the long term is, therefore, to harness the power of the STOCK MARKET BY CONTINUALLY ACCUMULATING GOOD SHARES. Put another way, we don't need to start off being fabulously rich to get even richer. All we need to do is to KEEP ADDING MONEY to the market regardless of prevailing market conditions.
The SECRET OF COMPOUNDING, which put simply is re-investing the dividends you receive into more shares that should in turn deliver more dividends that you can re-invest into more shares.
Compounding is a very simple idea. But sometime all it requires is to take a simple idea and apply it seriously. Those who do, could reap the benefits of investing in shares, while those do don't could be left wondering why they have been left behind.
Warren Buffett once said: "If a BUSSINESS DOES WELL, the stock eventually follows."
So, spend time looking for good business. We look for robust business that we can rely on to deliver SOLID LONG-TERM REWARDS for shareholders. We are not concerned by fluctuations in the market. We just take a simple idea and apply it, seriously
DIVIDENDS: IT'S NOT JUST ABOUT YIELD, IT'S ABOUT HIGH GROWTH
Dividends are like magic beans. You plant a few pennies, and a year later you’re reaping dollars. Of course, that still leaves the question of which beans are better. And since there are few predictors, most of us like using yield. But as our friends at The Motley Fool demonstrate, high yield isn’t the sole consideration:
Don’t just look at high yields. Consider dividend growth as well.
It’s Not Just About High Yield…
Dividends are likely to be highly sought after by investors, given the fact they’re an important component of long-term stock market returns and can provide a valuable secondary stream of income. But, investors who unduly focus too much on a high dividend yield might not be getting the best deal for themselves.
Let’s check out the three stocks listed in the table below to see why that’s so.
30 June 2007 To 30 June 2013
Company & Price of Sintel, Super Group &
Jardine Matheson Holdings
Telecommunications operator SingTel paid out an annual dividend of S$0.205 for its last completed financial year for an investor looking at the company on 30 June 2007, giving the company’s shares a yield of 6% then. That’s a high yield, given that the Straits Times Index (SGX: ^STI) was yielding an average of 3.7% back in 2007.
In contrast, the dividends coming from instant beverage manufacturer Super Group and conglomerate Jardine Matheson Holdings would not have been so attractive, given their relatively tiny yields of 1.6% and 2.1%.
But, for an investor who invested in all three companies on 30 June 2007, the dividend yields on their original cost basis, or yield-on-cost, would have shrunk for SingTel and grown much higher for Super Group and JMH as shown in the table above.
6 Years Later, Much has Changed for Those Dividends
Super Group and JMH’s dividends grew much larger in those six years, in contrast to SingTel’s smaller dividends. What was once relatively unattractive is now providing much better dividend returns for long-term investors.
Dividends for last completed financial year
on 30 June 2007
on 30 June 2013
Jardine Matheson Holdings
Foolish Bottom Line:
High dividend yields are attractive, no doubt. But, investors might leave a huge chunk of future-returns on the table if a high current-yield was their only focus, which explains the importance of a growing dividend. After a decade or two, those growing dividend paychecks might be far more lucrative than stagnant, but currently-high-yielding-ones.
American billionaire investor Warren Buffett’s investment in soda-maker Coca-Cola is a great example of how lucrative growing dividends can be over the long-term. Coke was giving Buffett a dividend yield of around 4% when he made his first investments in the company in 1988. But now, it is giving him a staggering – get this – 50% yield on his original cost basis!
Buffett’s focus was certainly not on haggling over a high yield. Instead, he focused on the potential for long-term dividend growth from the company. And, there’s no reason why we shouldn’t be doing this either.
Nobel laureate Daniel Kahneman says, “We systematically underestimate the amount of uncertainty to which we’re exposed, and we are wired to underestimate the amount of uncertainty to which we are exposed.”
The next market surge could be as sudden and as dramatic as the rises seen in 1998, 2003 and 2009, though no one could possibly have predicted them in advance. Then again, Warren Buffett once said: "Predicting rain doesn't count; building arks does".
The time to buy shares is when pessimism is rife. It is the best time to unearth good companies that are selling at reasonable prices. You may not always manage to buy the shares you want at rock-bottom prices. But as Charlie Munger cautioned: “A GREAT BUSINESS AT A FAIR PRICE IS SUPERIOR TO A FAIR BUSINESS AT A GREAT PRICE”
So, look for those GREAT COMPANIES, which you have always wanted to own, that are selling at a fair price today. But beware of fair businesses that are selling at great prices. The tide of money from corporate America could lift all boats. But why settle for a leaking dinghy when you can own a luxury yacht instead.