Market Timing vs Stocks on Sale

[NewMoney]

I've been wrestling trying to get my mind around when the best time is to buy stocks. I don't know if I should wait for a market crash or a correction to buy stocks or wait until the stock I want goes on sale.

I need some help with the logic behind when to buy.

I believe a stock goes on sale when some news about the company comes out and people dump the stock and the price per share goes way down. If the news pertains to something that will not be a long-term problem for the company, then eventually the price of the stock should go back up.

I have also witnessed that when the entire market goes down that the price of the stock that I want to purchase may also go down.

Both of the above scenarios seem to offer an opportunity to purchase a my stock at a lower price.

I could have bought my stock today when it dropped below its 52 week low. However, I believe the feds are not going to drop the interest rates on September 18. When that news comes out, I anticipate the market will take a dive and it may be an opportunity to purchase my stock at an even better price.

I also believe we are in a recession and that over the next 6 months things will get worse before they get better. I started predicting the recession 1 1/2 years ago.

Lets just assume that I'm correct and the interest rates don't change (don't go down, causing stocks to go up) and we're going into a worsening recession -- should I hold off and wait for just the right time to buy stock?

Please share your thoughts! Thanks!

[npg]

Originally Posted by NewMoney

I've been wrestling trying to get my mind around when the best time is to buy stocks. I don't know if I should wait for a market crash or a correction to buy stocks or wait until the stock I want goes on sale.

I need some help with the logic behind when to buy.

I believe a stock goes on sale when some news about the company comes out and people dump the stock and the price per share goes way down. If the news pertains to something that will not be a long-term problem for the company, then eventually the price of the stock should go back up.

I have also witnessed that when the entire market goes down that the price of the stock that I want to purchase may also go down.

Both of the above scenarios seem to offer an opportunity to purchase a my stock at a lower price.

The best time to buy is when the price drops below it's intrinsic value regardless of what the market or technical indicators are saying.

If the price drops even further then you need to see that as another buying opportunity.

The problem with this approach are twofold:

1) you don't want to buy into a value-trap
2) you need to be confident about the intrinsic value concept

1) can be addressed by sticking to companies in your circle of competence. That is, companies whose business procedures you can understand. Simply consuming their product is not enough.

2) is a bit harder because the R1 formula gives you anything but the intrinsic value. For a discussion on this try the 'technical analysis does not work at all' thread.

Do not try and guess the direction of the market unless you are willing to speculate. See Ben Graham's thoughts on that topic.