When is the Best time to Invest?

Author and personal finance coach, Usiere Uko writes on determining the best time to invest

 

Every educated investor has an entry and exit strategy. They determine upfront when to go in and when to exit. When you have a clear plan, it is easy to become focused rather than be swayed by emotions and sentiments. You don’t make up your mind in the thick of action. You do that before action starts. I often get irritated when the driver in front of me takes forever to make up his mind at the junction whether to go straight or make a turn. It is unfair to other road users when you cause a traffic jam while trying to decide which direction to turn. The effect is the same when you try to invest without a plan. The plan does not have to be complicated in order to be a plan. The simpler it is, the easier to follow.

The need for an entry and exit strategy becomes more glaring when you trade in online forex market. The action is so fast-paced that if you do not make up your mind upfront what your strategy is going to be, you can lose a lot of money before you know what hit you.

Emotions are part of what make us human. Some emotions like fear can cripple us if we let them. The predominant emotion

in virtually all markets is fear and greed. When there is a down turn like the one we are currently experiencing, the predominant emotion is fear and the tendency is to run for cover and hold on to your money. When there is a boom, the predominant emotion is greed and the tendency is to rush in to get a piece of the action and often part with our money without thinking through.

What then is your investment plan? What is your entry and exit strategy? The problem is that most of us don’t have any. We just go with the flow, the flow being what everyone around us is doing.

Are you waiting for prices to go up before you start investing?

That is what the average person does. An economic downturn or market crash evokes fear. Fear triggers a flight for safety – running away from low prices. It means low prices do not fit your entry strategy. You want the prices to rise up to a level before you enter. This strange psychology only comes to play while investing especially in the stock market. When it comes to shopping, low prices is like manna from heaven. The word ‘sale’ is music to our ears. Crowd control is needed on Black Fridays as people literally fight over discounted items. Low prices trigger a buy signal while high prices drive away customers. Why do folks run away when prices of assets crash? That is a subject for further study.

One of the reasons is that they need evidence that prices are recovering on a sustainable basis before they enter. They don’t want to enter, prices start dropping and they lose money. So they wait and watch until they are convinced that prices will keep rising before they enter. Often this happens when prices are close to the peak. Hence what actually plays out is that they enter when prices are high. If you step back and look at the whole scenario, it does not make sense, but when you are gripped by fear of losing money, you start to do funny things. For some, it is waiting for the economy to recover before they start their business. In real estate, it manifests in waiting for the property to start appreciating first before investing. That is what fear does to you.

You will lose money

If you are ever going to invest, you will lose money. You can take that to the bank. It is part of the game of money and investing. Actually, you are better off losing sometimes than always winning. You tend to party when you win and ponder when you lose. You learn more when you lose. Very few learn anything when they win. They are smart already.  They focus on what went well. Failure is a good teacher if you are teachable and not a blame expert. The worst thing to happen to you in Vegas is to win, as the saying goes. If you start out winning in Vegas, you will go home without your jewellery.

Losing is part of the game. There is no successful businessman who has not or will not experience failure. That is why you need your financial security plan in place before you take on risky investments. It does not mean you cannot take risks while building your reserves, including fixed income investments. When your back is covered, you are less afraid of taking risks because if all fails, life still goes on as usual. Life is about taking risks. Leaving home to commute to work daily is taking risk. Some have left home and ended up in hospital or mortuary. Travelling to attend a wedding or funeral is taking a risk, which is why we pray for journey mercies. If we are taking such risk already with our lives, why are we so afraid of risking some of our money? Your money or your life, which is more important? A comedian will say your money but in reality, we do it all the time.

Have a plan and stick to it

Before you invest, you need to have a plan and then stick to it. The economy goes up and down in cycles. Each phase has risks and opportunities. If your plan is to go in when prices are low, then the window of opportunity is still wide open. The window does not remain open forever. When the market crashes, you can pick up assets at bargain prices. This boosts your returns on investment in terms of income and capital gain (when the market rebounds). If your plan is to enter at a higher price, that is fine if you know what you are doing. There is no one right answer so far as what you are doing is working for you.

Starting a business at times like this has its own advantages, the same way a tough childhood can be an asset when it comes to succeeding in life. There is advantage in adversity. The fact that there is a cash crunch does not mean that some truckloads of naira have departed the country resulting in scarcity. The money has simply changed hands. They are alive and well somewhere, within our borders. The fact that heavy rains are causing flooding in your area does not mean that it is raining everywhere in town. There is still money to be made if we have the right focus and do the right things to attract income.

When is the best time to invest? It depends on your entry and exit strategy. If your strategy is to enter when prices are down and exit when prices are high, this may well be your window of opportunity.

For questions, comments or enquiries about the upcoming basic money management seminar, you can contact me at usiere@gmail.com, www.financialfreedominspiration.com. Follow me on twitter @usiere, 08106788187 text only, BBM C002B2697