One of the biggest challenges stock traders face today is deciding the best time to buy stocks. Often traders look up to buying stocks when their prices are low in the hope of benefiting from future price growth. The bear season when the stock market is in a downturn, often provided this buying opportunity for traders. However, the major challenge here is identifying the lowest level during the downward trend. This work has therefore examined the major advantages and disadvantages of buying stocks during a market downturn.
Meaning of Stocks
One of the ways companies raise money to run their affairs is to divide the value of their assets and sell them as shares to the public through an initial public offering (IPO). Investors who are convinced that the company has the potential to increase its worth over time usually buy the company’s assets when offered as shares for public sales.
Buying a company’s share offers the individual a legal claim over these assets and qualifies him to receive dividends from the company over time depending on the type of shares purchased. Other investors look up to selling these shares once the prices appreciate in the future. Buying and selling a company’s shares (also known as assets) is what we define today as stock trading.
How to buy stocks
Buying stocks today has been made easy through online stock brokers. To trade Stocks in the UK for instance, the trader will need to select from the list of UK stock brokers registered with the regulatory authority (FCA) and then register an account with them to begin trading. Brokers usually provide lists of the registered stocks on their platforms to make it easy for traders to buy and sell any stock of their choice.
When is the best time to buy stocks?
The best time for buying stocks is during the bear season when the prices of various stocks are largely discounted. Buying stocks during this period when there is a downturn in stock prices affords the trader a very good entry to benefit from the market when the prices appreciate in the future. However, this does not remove entirely the risks involved in stock trading.
Should you buy stocks during a Market Downturn?
One of the best moments for buying promising stocks is when their prices are largely discounted. This is because buying stocks at this level gives the trader a greater advantage to maximize his returns when the prices rise again. Many stock traders today consider the bear season which comes with a downturn in stock prices as the best time for long-term investors to buy stocks.
However, the only fear of buying stocks during the market downturn is that some weak companies often crashed during these periods due to mismanagement of funds. Other good stocks may take a longer time to rise.
It is therefore very necessary for stock traders to make proper research about the strength of a company, including its past performance over the years before buying their stocks during the market downturn.
Advantages of buying stocks during a Market Downturn
- Prices of various stocks are usually discounted during this period.
- Buying stocks during the market downturn allows the trader to buy more stocks with little capital.
- The period of market downturn usually serves as the best time for identifying strong projects.
Disadvantages of buying stocks during a Market Downturn
- Some weak projects may crash during this period.
- Prices of some stocks may take a longer time to rise again.
- The market liquidity is usually low during this period which increases the slippage.