From inflation-beating returns to owning a stake in some of the best-known household brands such as Starbucks or Amazon, there are plenty of reasons to buy shares. You can have a say in how a company is run and even make money when its value or share price rises. Unfortunately, you will also lose money if its share price falls.<\/p>
No one can predict the future, so it can be hard to know the best time to invest in a stock. In the absence of a crystal ball, there are factors you can consider when timing your entry into the stock market to assess if a stock is worth buying or selling.<\/p>
Here is what you need to know.<\/p>
There are lots of factors that can influence a company\u2019s share price, including its own financial performance, annual reports, trading updates as well as good and bad press.<\/p>
For example, popular exercise bike company Peloton\u2019s share price fell 11% in just one day in December 2021 when a character in the Sex and the City<\/i> reboot And Just Like That\u2026<\/i> died after suffering a heart attack on the machine.<\/p>
The wider political, social and economic environment can also have an impact.<\/p>
So-called \u201cstay-at-home stocks\u201d such as Zoom<\/a> and Netflix<\/a> performed well over the start of the pandemic as they benefited from the lockdown restricting everyone to their sofas.<\/p> In contrast, holiday-related stocks didn\u2019t fare as well due to restrictions on international travel. Tourism and travel stocks<\/a> plummeted at the end of November 2021 after the new Omicron coronavirus variant emerged, prompting governments to impose travel restrictions.<\/p> There are a number of times that you can invest in stocks. Here are some good times to consider investing and how to decide when to invest.<\/p> The initial public offering<\/a> is when a company first sells its shares on the stock market, known as the primary market. A company that\u2019s hoping to \u201cfloat\u201d will publish a prospectus that details its business and growth plans and will work with brokers to reach an offer price that you can first buy the stock with.<\/p> Typically, retail investors aren\u2019t able to purchase on the primary market, but we\u2019re seeing changes to this with recent IPOs, such as Deliveroo\u2019s<\/a> recent one.<\/p> You could invest shortly after the IPO by purchasing shares through a stockbroker or on a DIY investing platform. Getting in on the ground floor can be a good time to start investing in a stock as it could be the cheapest way to get a stake in a company.<\/p> For example, Amazon\u2019s offer price was $18 (about \u00a315) per share at its IPO in May 1997 and has grown by more than 100,000% since then. It may seem pretty pricey to purchase a whole Amazon share now but some platforms may let you just buy a portion, known as fractional shares.<\/p> You need to be confident in the valuation and be confident that the stock will rise or at least be stable and realistic when you first invest otherwise you could end up with a loss. Analyst notes and forecasts can give you an idea of how accurate a company\u2019s offer price is and if you could be paying over the odds.<\/p> A stock can often rise due to the hype around an IPO and later fall or it may even drop initially and take time to grow. This makes it important to consider the fundamentals of a company when choosing the time to invest in a stock.<\/p> A growth investor<\/strong> will try to identify companies that are expanding rapidly. These types of companies often have consistently high revenues and profits, which will ultimately help their share price grow.<\/p> Investors will look at who is behind a company and its business plan as well as its recent revenue and profits. Past performance does not guarantee future returns but investors will often consider a stock\u2019s performance over a few years and compare it with others to see how fast they are growing and if there is room for more growth.<\/p> One metric that investors may use is compound annual growth rate (CAGR), which provides an annual growth figure for a company based on a defined period of revenues such as 3 years. This can be risky as it can be hard to identify when a company\u2019s value has reached its peak and some may be tempted by firms trying to cash in on the popularity of a particular theme or sector.<\/p> For example, investors flocked to technology stocks during the dot com boom in the 1990s until the value of many companies crashed when evidence for their valuations was called into question.<\/p>When is the best time to invest in stocks?<\/h3>
Option 1: After an initial public offering (IPO)<\/h4>
Option 2: During rapid expansion<\/h4>
Option 3: When stocks are undervalued<\/h4>