Many of us have heard that the best time to buy stocks is during a stock market crash or during a correction. However, how many can actually put this into practice? The sure way to make money is to buy low and sell high. However, how many of have done the exact opposite? They buy high and plan to sell higher but the stock price tumbles, they end up selling low due to fear. Buying high and selling low is the surest way to erode wealth. How, then, is one to have emotional stability to buy stocks during a crisis when stocks are on a mega sale?
Firstly, you have to research into the company you are buying into. Behind every stock price is a company. How does the company generate profits? Where is it operating in? Is it a simple business? Is it a prominent business? Is it a strong brand? Next, you have to look into the management and access if they are honest and competent. Then, the most important thing is that you have to know the right price to buy at. This is essential as it makes sure you don’t sell prematurely when there’s still room for growth in the company. This takes the emotions out during a crisis. For example, a company is selling at $2 and has been dropping for the past few months due to market sentiments. You have valued the share at $4. This is a 100% discount. Would you buy it? Of course you would load up on this company as the stock price is screaming “Buy!”. On the other hand, someone who does not know the value of the company is going to sell at $3 when the price has been dropping due to fear. He will be cashing out at $3 even though the company’s value is at $4. Remember, that behind every stock price is a business with value.
You also have to be convinced and believe in yourself and in the company you have researched into. Conviction is paramount as this allows you to buy more of the company during a crash when it’s selling at a huge discount. Buying more at a lower price allows you to average your buying price downwards. This is how you buy low, sell high and create wealth. You cannot buy at the absolute lowest but at least you can buy at a low price region.
Recessions create new millionaires. During the last financial crisis in 2008-2009, Straits Times reported that the number of millionaires in Singapore increased by 32.7%. Do you want to be like them? If you do, you have to take opportunity and buy when stocks are low and not when they are high. To do that, you need to have emotional stability and that comes when you know the right price to buy at and be convinced with your purchases. Take control of your emotions and take charge of your financial destiny!