Stock Investment – When to Enter and Exit the Stock Market

Stock Investment – When to Enter and Exit the Stock Market

Whether you are just off the boat to hit the stock market or an old chap therein, you are likely to be on the horns of a dilemma, “when is the right time to enter the stock market”? While purchasing stocks. This, no doubt, is a valid and much needed suspicion as there are virtually limitless stocks being vended off and your nervous fingers scream, where do I start?

Another scrape to which not everyone lends any heed but few, is, “when should I exit the stock market?” Most people prefer and retract from their stocks, when faced by highly volatile or low market without analysing the prospects, which may yield covetable results later.

This write-up elaborates all that which you need to know about the most fitting times of making an entry into or exiting the stock market.

So, let’s dig in straight away!

When to enter and exit the Stock Market?

Remember, risks are omnipresent in the stock market, though they might be reduced to a certain extent. Understanding market mood is significant here, rather than simply going with your sentiments and intuition. Prefer analysis of the stock fundamentals and other details, and get yourself counselled by a professional in the regard.

There are four crucial data factors you need to consider before musing on the subject of the entry / exit herein.

 P/E Ratio of NIFTY:

For stock investments, it is the ratio of Market Value to Earning Per Share.

In case, the P/E is elevated, it implies that the stock is trading at higher costings contrasted to the earnings. For instance, if the P/E is 24, then for an investor it indicates that he/ she is prepared to reimburse Rs. 24 for each 1 Rs. earning of the company.

While if the P/E of Nifty passes over 24, then higher possibilities are those of downtrend which hints at increased valuations. And if the P/E of Nifty is not more than16, probability of ascending market motion is indicated.

This has been supported by the scrutiny of the stock market activity of the celebrity investors like Warren Buffet and other historical data. Just as the P/E gets 24, the possibilities of negative returns increase tremendously.

This can be backed from the withdrawal of the successful investors from the market when Nifty was swapping at P/E of 24 during low market in March’ 15.

When the NIFTY trades at P/E of 16-20, it is deemed as the ideal time of purchasing the stocks but still vigilantly.

So, the crucial pointers can be enclosed as follows:

1.    Higher than 24: Sell and Exit

2.    Between 20-24: possibilities of high volatility in the market; thus, purchase watchfully.

3.    Between 12-16: Accrue

4.    Below: Go greedy, purchase and invest in the stocks.

P/B Ratio of NIFTY: 

In stock investment, this is another crucial factor that needs to be looked after. To put simply, Book value of the enterprise is its total asset value.

That is the real/ actual valuation of a share/ company according to the enterprise itself.

For instance, in case a company has a book value of XYZ company is Rs. 100, while the share is trading at Rs. 200. Thus, P/B ratio happens to be 2 here and is overvalued too.

While the principle of value investment exhorts one to deal with shares when P/B is 0.8. This implies that the stock is undersold.

Pragmatically, this is not feasible at the index mark.

So, the crucial pointers can be enclosed as follows:

1.    Higher than 4.5: sell and exit

2.    Between 2.75 to 3.5: choose and purchase the stocks carefully.

3.    Between 2 to 2.75: Accrue

5.    Below 2: Go greedy, purchase and invest in the stocks.

Dividend Yield of NIFTY:

The dividend yield is defined as Annual Dividend per Share divided by the Stock Price. This ratio, however, is not quite vital to contemplate over compared to other three for investing in stocks. This is because it is announced by Cash-rich enterprises solely. To ease the confusion here, in case the share price is 100 bucks and annual dividend is Rs 2. Thus, the Dividend yield is 2%.

So, the crucial pointers can be enclosed as follows:

1.    Not more than 1: Sell and make exit

2.    Between 1-2%: possibilities of high volatility in the market; thus, purchase the stocks watchfully.

3.    Between 2-3%: choose and purchase the stocks carefully.

4.    Between 3-4%: Accrue

5.    Higher than 4%: Go greedy, purchase and invest in the stocks.

FII’s Trading:

FIIs is an acronym for foreign institutional investor and refers to an investor or investing institution which capitalizes in countries other than in which it is based or registered.

It is exhorted that one should enter the stock market when FIIs are purchasing and make an exit when they do so. Simply trail their moves!

Further, you should consider exiting your stock in three scenarios discussed below:

1.    You have found a better stock

If you find a share whose company boasts of enhanced fundamentals than the one which you are sticked to at present.

You may safely exit the stock to swap into a new one. Ascertain that you have performed sound research and analysis of the fundamentals of the company you are hankering after.

2.    Overvaluation of a company’s share goes high in less period

Generally speaking, the stock costs of a robust enterprise may escalate over time.

Though, if the share prices of the company have surged rigorously in relatively less time, you may opt to selling it.

3.    The fundamentals of your current stock debilitate

The fundamentals of the company were the once who caused you to select a particular stock and if you notice a decline therein, it means your profits and revenue, both are going to suffer.

This is typically an outcome of company’s torpid activity that it is not shovelling up any hook for the customers and thus flourish.

4.    When you are in terrible need of the money

And this is the top reason why you entered the share market: for generating wealth. Though, it is generally urged to remain invested in the market for long term.

And further to consider the same after budgeting your expenses, and edging out urgent funds. But still emergencies can barge in out of the blue and in such a scenario it would not be unviable to cash and exit the stocks.

Bottom line

So far, we batted on the factors to consider while you enter or exit the stock. Try doing sound research before hastening to abandon the shares, and research is no less important while even while thinking of purchasing a stock.

At the end, leaving you with pearls from Warren Buffet, ““I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

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