Good Times to Buy Stock
Between 1980 and 2000, stock prices rose steadily, except for a few minor bumps along the way. During this time, it made sense just to buy stock and let it grow. As investors learned from the bear market, which lasted from 2000 to 2003, and again from the 2008 financial crisis, choosing a good time to buy stocks can mean the difference between profit and loss.
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Bull Markets Versus Bear Markets
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When the majority of stocks are rising, stocks are said to be in a bull market. Likewise, when the majority of stocks are falling, it is a bear market. Bear markets can be brutal on stock prices. During the 2008 financial crisis, stocks lost roughly 38 percent of their value over a period of just a few months. Buying stocks during a bear market can be painful, especially if you have a short investment time frame.
Value Investing
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Warren Buffet has said, "Buy when there is blood in the streets." Buffet is a value investor who believes that the value of well established, strong companies rises as their share prices fall. While most investors sell during bear market conditions, Buffet buys shares in companies such as Coca-Cola, Proctor and Gamble and Johnson and Johnson, reasoning that if their future earnings potential remains in tact, lower share values caused by bear market conditions make them a bargain.
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The Dollar
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The dollar offers investors a way to determine how strong the market is likely to be moving forward. The dollar has developed an inverse relationship with the markets. As the value of the dollar falls, stock prices tend to rise. This is because the intrinsic value of companies remains relatively the same even if their share prices rise as a result of inflation. You can easily chart the dollar using the ticker symbol UUP. If UUP is making new 52-week lows, stock prices are likely to rise.
Earnings and Outlook
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While market conditions have a big impact on stock prices, company earnings and outlook ultimately determine how well or how poorly individual stocks perform over time. Before buying a stock, check the balance sheet. Companies that have increasing earnings over the past three quarters or more can potentially provide continuing growth. Moreover, ask yourself if this company has potential to continue to earn. If it sells a good product or a good service that is not just a fad and is likely to enjoy continued demand, its share price is likely to benefit into the future.
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