by Steve Schott, Financial Advisor, Schott Financial Management
People often ask when the best time is to purchase stocks, get in the market or sell. Trying to time the market is not possible. There are a few items to consider when purchasing stocks — most of which hold true for mutual funds.
1. PROFITS — Does the stock you are interested in make a profit? Clients often get excited about the newest thing (usually a technology company) and want to get in from the very beginning. This is way too much risk for an average investor — something better left to venture capital firms. After the company starts making a profit, there still can be considerable price appreciation with much less risk.
2. PE RATIO — The price divided by a company’s earnings provides the PE Ratio. This computation can be performed on individual stocks or the market. Generally, a person wants a low PE ratio but if the ratio is too low, then there will not be profits. Another good comparison is like to like companies as different sectors have different expectations. Growth companies in general have higher PE ratios.
3. DIVIDENDS — are a very important part of total return for portfolios especially when looking for yield in a rising interest rate environment. High quality stocks generally have dividends with a history of rising dividends over time.
4. 52 WEEK HIGH/LOW — This is a simple strategy that takes the average of the high and low prices for the last year and buying under that average. This does not work for all stocks as those in strong growth phases rarely trade below the average, but the strategy works for most purchases.
These are four ideas to help individual investors. Timing the market is not possible but being disciplined with a few simple strategies can add value to your portfolio. If you would like to further discuss these and other strategies, please give us a call at 928-776-1031, or visit our website at schottfinancialmanagement.com.
