Some people spend years or even decades thinking about getting into the stock market, without actually making a move. Some may think they once identified the perfect moment to start buying shares — but only years later when they see the profits they could have made!
If I was wondering whether now might be a good moment to start buying shares for the first time, here is how I would go about it.
Investing versus speculation
First, I would learn about the difference between investment and speculation.
In my opinion, investment involves putting some money into businesses I expect to prosper over the long term. By contrast, speculation involves buying something one often does not understand, hoping it will go up in price so it can be unloaded onto a new buyer at a higher price.
I am interested in investment not speculation – and there is a reason for that. If I invest in a company, I think I can assess its prospects and make a judgment on how I hope it may do in future. By contrast, speculation involves the psychology of lots of people I do not know – and have no way to assess.
Timing investment
Given that I see things that way, if I was to start buying shares for the first time, would I want to dip my toes in the water when the stock market looked like it was doing well? Or should I try when the market was falling and I reckoned share prices looked cheap?
The answer might be: either! Remember, as an investor, I would be trying to find companies I thought had great future prospects. I could try to do that regardless of how the stock market overall was performing.
But what could be different was the value I saw in a company’s current share price. Often, an attractive business will be seen as such by investors – and its shares may be priced accordingly. But in a market downturn, even the shares of some very attractive companies may be marked down. In the past few months, for example, I have taken advantage of a lower share price than before to increase my holdings in JD Sports.
Market timing
But it is impossible to know what the stock market will do next. Maybe I find a company that I think has an attractive outlook and decide to wait before buying it – only to see the shares get more expensive and then stay that way for many years.
As no one knows what will happen in future, I do not try to time the market. Instead, I focus on finding what I think look like appealing companies. Then, if their share price seems to offer me good value relative to how I expect them to perform in future, I may buy them.
Why I would start buying shares
So, if I had never been active in the stock market before, I would be happy to start buying shares this year — or any year. But I would only do so if I could find shares that met the criteria above.