Photo: Flickr / Adam Swank
Ask most investing experts what they think the biggest stumbling spot is for investors, and they’ll say it’s trying to time the market. Rather than base their decisions on the worth of a company, these investors follow the herd by trying to guess when its price will rise or fall. It doesn’t matter if the company’s intrinsic value has actually changed—they care that everyone thinks it has.
But there’s a problem with this, says Amir Avitzur, president of Avitzur Asset Management and author of the book, Why Do We Sell Low and Buy High?.
“When you do this, you’re playing the game everyone else is playing, so when the stock rises, hundreds of thousands of people will be trying to do the same thing—sell,” he tells Business Insider. “It’s not a sure way to win.”
The real way to play it, says Avitzur, is to base your “buy/sell investment decisions on the company worth,” which comes through a deep understanding of not just the company, but the industry as well. Once the investor has that down, then he can decide to buy or sell shares of the company. Ideally, he’ll be buying the stock well below the company’s worth.
“If you’re value investing, or investing with knowledge, then you’ll wait until the market offers a price and then make a move,” says Avitzur. “If a stock’s price is $50 and it’s worth much more, then the decision to buy will be a logical one. Eventually the stock or company will reach its real value,” and that will be the right time to sell.