When To Buy and Sell Your Stocks

The mechanism of purchasing and selling is kind of straightforward. It is as simple as pressing a button in front of your PC screen. The problem of when investors should buy and sell warrant a more in-depth stock market analysis.

When to sell : Ideally, we should sell when a stock reaches its fair value. There are nine other reasons to sell but I will not cover it here. So, what’s a stock’s fair value? I have covered this masses of time. However generally, a stock reaches its fair price when it is yielding 3 p.c. above the existing free risk rate. We can use the ten year treasury bond as a substitute for free risk rate of interest.  Let create an example in which the ten year bond is yielding 4.46%. Fair price of a stock is thus when it is yielding 7.46%. Inverting yield, we then got the generally used Price Earning Proportion . Yield of 7.46% matches up with P / E proportion of 13.4

When to buy : This is a less complicated topic to answer. If you are aiming towards a 34% return, then your purchasing price is at a P / E of ten. Briefly we should buy at a P / E of 8.93 and then sell at a P / E of 13.4, correct? Yes, but with a large amount of provisos. I have covered those provisos in 5 common misuse of P / E proportion. To stress, the P / E ratio used here isn’t trailing P / E proportion, does not ignore the value of cash in the balance sheet, doesn’t ignore one off event and doesn’t forget the change in rate of interest. At about that point, we are ignoring earning expansion just because the fair worth calculation is for a company with 0% expansion. You could be pondering where you could find stocks that are trading at a P / E of 13, not to mention 8.93. Here’s a few applicants to help getting started. Seagate Technology ( STX ) has a forward P / E of 7.5 and $ 2.30 per share of net cash in the balance sheet.

Western Digital Corporation ( WDC ) has a forward P / E of 9.75 with $ 2.65 per share of net money. OmniVision Technologies Inc. ( OVTI ) is trading at a forward P / E of 10.3 with $ 5.30 per share of net money. Magna Global ( MGA ) is trading at a forward P / E of 9.72 with $ 4.58 per share of net money.

Please note this is not a buy / sell recommendation and you should first talk to a financial advisor before investing in the stock market today.