Common Stocks and Uncommon Profits
When To Buy
In this chapter, the author talks about how to time the market. Finding the best stocks is one aspect to make money, but if an investor wants to optimize his profits, he must also pay close attention to the timing of buying those stocks. The author sheds light on various factors that may influence the optimum time to invest. Much of these factors depend on an investor’s temperament and his objective.
All stocks held for a long time will generate a considerable amount of profit.
The most usual method of understanding the optimum time of investment is through analysis of economical data. However, this method is impractical because economic forecasting is rarely accurate.
A good time to buy a stock is when a company is about to launch a new product.
The stock price of a company rapidly rises during the launch of a new product. However, if the launch of a product is delayed due to financial losses associated with the shakedown period, then stock prices fall.
An investor should always look for a company with an exceptionally able management. A company might face troubles during difficult times. However, such issues could be solved in a matter of months by an efficient management. An ideal investor should be able to identify such troubles that are temporarily faced by a company. Stock prices fall during such downturns, and this is time for an investor to buy the stock.
Improvement in technology that increases output or reduces the cost of a company is a strong indicator that the stock prices will rise. Such times are viable investment opportunities.
Philip Fisher concludes the chapter by pointing out the 5 powerful forces that affect the outcome of an investment decision. It includes economic depression, governmental attitude, technological innovation, inflation, and interest rates. These factors are difficult to assess at all times. According to him, always invest in companies that have an undeniable growth potential.