Is it the right time to buy stocks on LSE?

For many novice investors, buying stocks on the stock market can be confusing and a daunting task. Moreover, as the pandemic continues onto its second year, the market uncertainty has caused confusion for even the many seasoned investors.

As the UK economy begins to rebound after a year of low economic activity and as the country becomes home to one of the most vaccinated populations across the world, investors are more interested than ever to leverage the news by investing in the stock market.

In this article, we take a deep dive into whether timing plays an essential factor in investing, and if so, what other aspects one must consider before knowing when to invest in UK stocks.

How important is timing the market

Market timing is a trading or investment strategy wherein traders or investors attempt to identify the right time, such as a day, month, week, or another duration, to buy and sell a stock in a manner that can yield higher returns than the normal stock market.  

Investors often keep a close track on the news flow of stock markets and publicly listed companies in order to identify if certain news can impact stocks and present a good opportunity to buy or sell their investments.

Also Read: Is It Better to Invest or Save Money? How Much Money Should I Keep in Savings?

While this strategy may be useful for traders who operate on a short term basis and can make the most of market movements. It is not a feasible strategy for long term investors, portfolio managers and other types of financial investors.

Thus, one of the first things one must consider before buying stocks is whether one is doing so as a day trader or as an investor focused on generating wealth.

Traders

For traders knowing when to buy or sell stocks is crucial. The first and final hour of trading is often the busiest in terms of market activity. Some traders also believe Monday is the best day of the week to buy a stock, although there is little evidence to support this holds true for a longer period.

Similarly, some traders consider Friday as the best day to sell a stock before prices drop on Monday. Markets also tend to give positive returns during summer and close to the end of a year, pushing stock prices higher. This phenomenon is called the January effect.

Some other months that are considered crucial for traders include September, which does not typically offer great returns and October, which tends to have a history of offering positive returns.

Moreover, while there is no right time to invest in stocks, stocks do tend to increase towards the beginning of a new month due to mutual funds getting inflows of money at periodic intervals.

Investors

As mentioned above, investors do not usually find it beneficial to time the market; thus there is never a bad time or a good time to buy stocks for investment purposes. What matters is how much time the investor chooses to stay invested in stocks.

Long term investors should instead aim to invest regularly regardless of the market if it is in a bull run or not. While in times of recession, it offers investors the opportunity to buy stocks at cheap price and undervalued stocks.

In cases of market boom times, long term investors will typically continue to invest but put their focus on seeking high quality companies for their investments.

Moreover, long term investors should not invest money they would need for the next five years. They should also consider investing small recurring amounts and in highly diversified portfolios such as mutual funds or exchange traded funds.

Overall, for day traders, apart from the first hour and last hour of trade remaining busy, all of the above-mentioned suggestions are generalisation and can have exceptions to these trends due to news events or other external factors. Whereas, such considerations do not hold for long term investors, as they stay invested for a longer period.

Also Read: How Do I Buy Shares in the UK?