As a general rule, no professional analyst or economist can be able to predict with absolute accuracy what direction markets will take in the coming months or years. Therefore, can you venture what is the best time to buy and sell shares or would this pose an unnecessary risk?
According to a recent study by the investment firm Architas, belonging to the Axa group, the money invested in FTSE All Share each year between November 1 and April 30 would have given a return of 167% in the last 22 years. A phenomenon that is not exclusive to the United Kingdom, since the stock markets in each of the main investment regions worldwide have generated more than positive returns in this same period.
Short and long term investment
Precisely, at the end of last 2018, the shares of the Ibex 35 were cheaper than when the year began, which for many was an excellent time to buy the shares of BBVA. However, short-term investors usually do not always have them when they see these prices so cheap and ensure that you have to be very careful when buy and sell shares.
In this sense, they describe a series of reasons that must keep us alert when acquiring shares:
- The current volatility generates too much uncertainty in the stock markets
- Low growth expectations
- Possible economic slowdown
- The rate hikes by the European Central Bank (ECB)
On the other hand, this situation is perfect for long-term investors (we speak of several months and even years). Not in vain is it a great time to buy shares at prices significantly lower than the average, which can be expected to comfortably obtain a future return much higher than expected.
Therefore, when determining the best time to buy shares, the position of the investor must be taken into account first, whether their intentions are short or long term.
Investing in the long term is like saving while speculating in the short term requires a daily dedication to be able to benefit from the small movements that occur in the market during each day.
But, at the same time, two aspects that are fundamental to make a correct decision must be taken into account: technical analysis and fundamental analysis.
Technical analysis and fundamental analysis to buy and sell shares
Most people buy when they see that the stock market rises, that is, when the prices of the shares are more expensive; while it usually sells when the stock market falls, that is, when stock prices are cheap. But how do we know that an action is cheap or expensive?
For this, we will have to use technical analysis and fundamental analysis, which will determine when is the best time to enter the market and buy and sell shares.
The technical analysis, first, is used to invest in the short term, either in time intervals of hours, days or weeks, and is ideal to know when to buy or sell. For its part, the fundamental analysis is used to invest in the long term (several months or even years) and to know what to buy or sell.
The fundamental analysis
This type of analysis has as its fundamental objective to calculate the real value of the shares through the balance data, comparing it with the stock market value. In this way, you can discover if at a certain time the price of it is undervalued.
This tool will allow the investor to assess the financial risk of the companies since what is actually done is an analysis of the environment, the calculation of certain key ratios and an assessment of the companies themselves. It goes without saying that this type of analysis is a good starting point to analyze where it is better to buy and sell shares according to the financial health of the value.
The technical analysis
Technical analysis is a method that dispenses with the study of financial risk since what it really does is to study the action of the market in order to predict future trends in the price. This means that it is a study that looks at the stock price, stock market volume and open interest.
Actually, this analysis is a complementary tool that can give us some very interesting clues about when to buy or sell based on trends and market developments.
In short, both fundamental analysis and technical analysis provide the investor with the best information to help him make the most appropriate investment decisions on buy and sell shares. But for this, it will be essential to identify and predict the evolution of contributions.