When To Buy Shares

There are two different strategies for buying shares at an appropriate time, and both are very different. Each can be a very effective way of making money on the sharemarket but the techniques will suit different personalities.

Strategy one: Buy when positive trends are strong

This technique follows the idea that when a stock is moving in a certain direction, there's a very high likelihood it will continue to do so. Trends are very strong on the market and it takes something significant to get a stock (or market) to change direction. So strategy one involves purchasing shares that are already trending upwards and riding their fortunes until things change. Using a multiple moving average, it is possible to chart statistically when a stock has "crossed over" and is now heading in a positive direction. The MMA was pioneered by Darryl Guppy who has written numerous books and made considerable profits using this technique.

So look for stocks that are trending upwards, have "crossed over", and are possibly in a slight pullback. But be careful as trends DO change and if you buy at the top of a trend, you may end up selling out at a loss. Make sure you put in place a countback line and if your stock moves below this, get out.bear-vs-bull-market

Strategy two: Buy when there is doom and gloom

This technique is the backbone of investing guru Warren Buffett. When there is uncertainty and bad news in the market, investors tend to panic, and everything gets oversold. This can be the perfect time to buy shares, as long as you pick the right ones. Knowing quality companies that have strong balance sheets and good management can help you to select a good stock, at a low price. An idea is to select a number of companies that you like, work out how much you'd like to pay for them, and then put in a bid 15% lower. You may think "there's no way i'll get this price" but as you've seen from the global financial crisis and then recent European debt problems, the market can get smashed in a short period of time. It's hard to believe less than 18 months ago people were picking up quality blue chip shares at bargain prices!

  • BHP shares $20
  • Wesfarmers $14
  • Macarthur Coal $2.50
  • Woodside Petroleum $27
  • Telstra $2.88 no wait, i can believe that one!

Obviously after you buy the stocks there's a chance they will fall even further. After all, as mentioned above it takes something significant to change a trend. So only investors who can handle a bit of short term pain should use this strategy. But if you select quality stocks and put in a buy bid lower than what you're happy to buy it at, and you have a medium term outlook, then you are going to do very well.