We are always looking for jobs in promising industries, and buying houses is a valuable community. When comes to stocks, we still buy the stock when price rises.
Why do stocks fall? because everyone else is selling. When is everyone selling? It is usually when the market is depressed and people are extremely pessimistic. So extreme sadness is usually the best time for us to buy.
Then how to judge the "extremely sadness"?
For example, if you plan to buy a stock in its " extremely sadness ", when is the most appropriate time? You can find a forum online where to discuss this stock and check what others’ opinions. If more than 90% of the original group of holders have sold this stock, you can buy it. After that, the stock will probably rise.
Of course, in reality, it is not easy to accurately grasp the departure time of the last batch of sellers, because this kind of judgment is relatively subjective and depends more on long-term investment experience. Especially for beginners, the timing judgment cannot be as accurate as that of experts.
However, you can recognize the existence of " extremely sadness ", learn to think independently and not be disturbed by market sentiment. At least you have made much progress than other investors.
Since there is an " extremely sadness"", correspondingly there is also an "extremely optimistic ". When most people in the market feel optimistic, it is also the best time for you to sell.
Just like Japan's economy reached its peak in the 1980s, many Japanese enterprises began to buy a large number of American enterprises and assets after they became rich. There was once a saying that if you sell the land in one city of Tokyo, you can buy the whole United States.
It revealed the confidence of the Japanese by then. They were optimistic about the future and think that it would be a matter of time before they surpass the United States. But in fact, Japan's economic foam was very serious at this time.
By the end of the 1980s, the Nikkei index was the first to collapse, falling 60% from its peak. After two years, Japan's economic growth began to decline, and then fell into a long-term stagnation.
How can we judge whether it is " extremely optimistic " at present?
Generally speaking, the P/E ratio reflects the sentiment of the whole market. The higher the P/E ratio of the index, the more optimistic the sentiment of everyone is. Then you should consider selling at this time.
In addition to checking the P/E ratio, the other solution is when you find a better stock that can replace it.
Of course, how to calculate the investment value of a stock in reality involves your understanding of the company and certain professional knowledge, which requires you to spend more time to learn. But I believe that with the accumulation of experience, you will become much more proficient.
