How to Buy Low in the Stock Market

Warren Buffet famously opined "When others are fearful, be greedy, and when others are greedy, be fearful." Here's how to know when it's time to be greedy and buy low in the stock market.

Difficulty: Moderate

Instructions

Things You'll Need:

• Money to Invest
• Internet Access

1. Decide how much money you want to invest and risk. There is never any guarantee that a stock will go up, so never invest more money than you can afford to potentially lose.

2. Go to a website like Yahoo Finance that keeps track of and compares which stocks go up or down. This is how you will be able to tell which stocks are devalued and ripe to buy low.

3. On any given day, there are always some stocks that have had their value go down precipitously. These will show up as "biggest% losers" or some similar title. The low value may be because of a scandal affecting the company, a bad earnings report, or a general belief that the industry is in decline. With big companies, it is usually easy to do a little research and find out what went wrong throughout the day.

4. In general, if there is something that is affecting the company specifically, it is likely that there are a lot of investors who have panicked, deciding that it's time to sell low (instead of buy low, which is the smart thing to do). This is where you come in. If a company is in the "loss leader" segment and has lost a huge amount of its value from some kind of scandal, there is a good chance it will recover some of that value in the near future.

5. If you feel confident that investors have become overly nervous and have caused the price of the stock to become too low, you can step in and buy low. Try to diversify and put your money in several different stocks to minimize your risk.

6. After the stock price goes back up significantly - which may happen in a matter of days or weeks - sell the stock and find new stocks that are undervalued and buy low. Keep in mind that some scandals and revelations can cripple companies seriously and that their value may continue to go down for quite some time. There is always risk with this strategy.

7. This strategy is often called "bottom fishing" or "deep value" or "contrarian." It's a very risky strategy, but if you have good intuition about the market - or you get lucky - you could make a lot of money by deciding to buy low.

Tips & Warnings

• Sell your stock as soon as it makes a significant recovery. Don't be greedy and think it will go up forever.
• Some companies do not recover their value ever and others go bankrupt, making their stock worthless. So never put more money into the market than you feel you could afford not to have in your bank account.

Resources

• When to Invest in Gold
• How to Invest in Platinum Futures
• Penny Stock Investing

[Smireles]

on 3/29/2009 Thanks for the information. I have been watching the stock market closely.