Very often the market has gone up to a level whereby investors will start asking these questions.
"Is it too late to buy?"
"This share has already gone up so much, should i buy now?"
"When will the market correct?"
So what should you do? Should you stay out and watch? The answer is very simple. All you need is some simple reasonings to convince you that investing in the midst of a rally can be calculated risk afterall.
Step 1: Evaluate the Fundamentals of the Economy
We all know the economy is bad but always bear in mind the stock market is a leading indicator of the economy. Be sensitive to the figures pertaining to job losses. Never be behind the indicator....if you find yourself buying shares after the economy has recovered from its worst patch, its recommended you buy on a retracement in the markets and not immediate.
Step 2: Consider Dividend Yield in Your Stock Selection Process
The definition of being stuck in a share is that one is reluctant to sell it should the price falls below his/hers entry price. In this scenario, its only logical of a long-term investor to hold on to his portfolio.
Dividends will help alot if one is ever stuck. Anything above 7% at this juncture is still considered very attractive. Of course this is based on the current market price but of all is the best projection one can have in this uncertain world.
There are also some companies which might not be dishing out dividends now but often in good times they are generous in their dividend payouts. Be mindful of these companies too as they are potential long term investments also.
Take for example Citigroup. In good times, their dividend payout can be up to US$2 a year. At the current price of US$3+, do your own calculation if its worth a long term position. Bear in mind the restriction of dividends by the US Government for the next 4-5 years.
Step 3: Establish an Entry Price Using Technical Analysis
I am not going to teach you charting here in this article but Fibonacci's and Trend Lines work really well in establishing support and resistances for me. I hate buying at resistances and selling at supports.
Step 4: Though its Long Term, Its Good to Set a Cut-Loss
Not Technically, but be sensitive to the news and policy changes surrounding your investment. No company is too big to fail in my opinion.
I hope these helps and onwards, i hope to write more for this blog and share my investment ideas with you all.
