With the constant ups and downs, the Stock Market is like a constant exercise in evaluation. Knowing which stock will go up, how much it’s worth, and whether it’s something that you should invest in can be a tricky and even risky business, especially if you’re just getting started.
Many investors make the mistake of trying to get the most stocks out of their money, and it can really lead to problems down the road. However, billionaire investor Warren Buffett has three tips for how to approach buying stocks when the market is high.
1. Don’t attempt to time the market
Buffett is often quoted as saying that his “favorite holding period is forever” and while you could take it literally, what he means by that is that you shouldn’t invest in something with the sole objective of selling it off in a short period of time. Stocks should only be purchased with the intent to hold them for at least five years (if not more) in order to see the maximum profit. Buy solid companies and hang on to them.
2. Focus on great businesses at fair prices
Another popular Buffett quote is “It is far better to buy a wonderful business at a fair price than a fair business at a wonderful price.” That investing gem is especially true when the market is high. It might be tempting to purchase something less expensive when the market is up, but that’s not the way to make money. You should never purchase stocks simply because they’re inexpensive—always do your research and remember that fewer investments in a good company far outweigh a ton of investment in a bad company.
3. Build your positions over time
Unless there is a fantastic deal on a great company, one of Buffett’s favorite ways to acquire stocks is called Dollar-cost averaging, where investors invest a set dollar amount in the same investment at fixed intervals over time. This allows investors to buy fewer shares when prices are high and more shares when prices are low. It is a slower process, but it can really pay off over time as you’ll get the same amount but for a better deal.