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How to know when the stock market bottoms

by , 26 November 2015

If you could time a stock market bottom to perfection, you'd make a lot of money buying shares just before prices recover.

But it's not as easy as that. The stock market can always fall further than you think.

So if the stock market is falling, when should you start to think about buying?

Read on to find out…


Buying shares when the stock market is down

 
Buying shares when they’re trading at depressed prices is a good way to make money over the long run, but you don’t want to buy if the stock market still has further to fall.
 
The market can always fall further than you think it will and this means buying too early isn’t a good decision.
 
If a market keeps falling each day, you may think that it’s worth buying into them once this stops, but it’s not necessarily.
 
Based on what’s happened in the past, this can suggest underperformance in the months ahead. You need to look closely at what’s happened in the past.
 

How to pick the best time to buy shares

 
To pick up shares at bargain prices, you need to look at your time frame. A losing share has to be a loser for a long time before it will outperform, Dr Steve Sjuggerud in Daily Wealth explains.
 
A good rule of thumb to work with is three years. By opting to invest after three years of poor performance you stand a much better chance of seeing good returns over the coming few years.
 
If you want to try to buy stocks at the bottom, don’t assume that after a year or less that stock prices are going to recover.
 
Instead after a longer period of time, say three years, you’re more likely to see prices recovering and you’ll be in a better position to make money from the ensuing outperformance.
 
Picking stock market bottoms isn’t easy and it’s risky. Wait for time to show you.
 
So there you have it. How to know when the stock market bottoms.
 
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