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Online Share Trading

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The danger of 'buy low, sell high' when a share is crashing
Dineo_T
Contributor
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Whenever we see market darlings fall on the JSE, the number one question I get is: “should we buy it now?”

 

Of course, buy low, sell high wisdom tells us that the best time to buy a share is when the price is low. That way, you’ll make a killing the moment it rebounds.

 

But what if it doesn’t rebound? For me, investing is not a gambling game. Neither is trading. And so, if you don’t have a particular indication for ‘buy’ apart from simply “but it’s falling” then you’re just gambling and not making an informed decision.

 

I have a checklist of questions one should consider before buying a share that’s falling at an alarming speed.

  • Do you know why the share is falling?
  • What is the company saying or doing in response to the rapid share price decline?
  • Is there stock falling because of an internal issue or is it something management has no control over (external).
  • Have regulatory bodies said anything that may impact the share price further?

This list is by no means exhaustive, but these are factors to consider before jumping into a stock whose share price has fallen. Don’t jump into a share because ‘everyone is doing it’. Gather enough information on what exactly has gone wrong and how it can be fixed, if at all. At the very least you’ll know that you’re making an informed decision.

 

I know losing out on the rise of what people consider a great stock is difficult to digest. When presented with an opportunity to finally buy it at a very low price – we shouldn’t charge in blindly. If the share recovers, you’ll have time to get it.

 

New to the world of investing? Follow our series on Financial Markets:

Financial Markets For Beginners || Episode 1: Defining Financial Markets

Financial Markets For Beginners || Episode 2: A Look At The Equities Market

Financial Markets For Beginners || Episode 3: Unpacking The Commodities Market

Financial Markets For Beginners || Episode 4: Navigating The Forex Market

Financial Markets For Beginners || Episode 5: Demystifying Derivatives

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