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Thursday, April 16, 2009

How To Buy Stocks In Difficult Times?

Currently, the stock markets are in a state of confusion and lack a convincing direction. There have been many actions and huge economic stimulus packages announced by almost all nations. Analysts and large investment houses are watching the developments, and their impact on consumer and investor confidence. Let's understand how to buy stocks in such difficult times when many of the stocks are highly volatile.

Buy stocks with good fundamentals & intrinsic value
In the short term, the markets will be primarily driven by news (global as well as local), and as a result, could be quite volatile. However, analysts are optimistic on the long-term (4-6 quarters and more) investment and business scenario.

Therefore, long-term investors should not worry much about this short-term volatility and use the current market conditions as an opportunity to pick fundamentally-sound stocks for their portfolios.

Checkout: Stock Market in 2009 - Stocks to Buy

The best way to identify fundamentally-good and outperformer stocks is based on understanding and anticipating the changes in the global economic conditions, its impact on various sectors , and then identifying the companies and stocks that have high quality characteristics and are trading at attractive valuations in the market.

All this requires a deep understanding of various concepts and access to the right information. It is not easy for individual investors to compile all the required data and analyse it to identify the right stocks to invest in.

However, small investors should try to understand the logic of any tip, either from their stock broker or news source, to the best of their ability. This will help them in taking better decisions. Here are some tips to help you identify and pick potential stocks, and build a balanced portfolio.

Read: How to buy stocks ? Buy stocks with confidence

Go for long term
First of all, be prepared to invest for the medium to long term in the stock markets - at least one year or more.

Currently, many blue chip stocks are available at quite attractive prices in the markets. But investors should analyse the available information and arrive at why a company will benefit and grow in the future.

Smart investors develop the ability to study the relevant information and form a basis for their investments.

Follow Systematic investment plan for buying stocks
In volatile market conditions , it is difficult to predict the short-term directions of the market or stocks. It is advisable to stagger your entry or exit. Identify fundamentally-good stocks and invest in a systematic pattern by buying in small lots so that you get a good average entry or exit price.

Repeat your analysis periodically on selected stocks based on the availability of more information. If the plan to invest in a stock is reconfirmed by repeated analysis then you can hold on to your investment and accumulate more. On the other hand, look at exiting from the stock if you think the performance prospects are not good in the future.

Have patience - It is the key of long term investing
It is advisable to create a well-diversified portfolio of 6-8 fundamentally-good stocks. Investors should review the performance of their portfolio every two weeks and change the allocation as required.

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