Opportunities abound, but not all are the best…
When stocks decline and we look for bargains, how do we know when we are at or near the bottom?
Let’s look at recent and ongoing examples. Two large company stocks have declined substantially. Maybe it’s time to pick up some shares at these new lower prices. But when should we pounce?
The first company is the 3M company (NYSE:MMM). The second company is Stanley Black and Decker (NYSE:SWK). This post is not a recommendation to buy, or trade.
3M is now trading at about 60% of its 52 week high. Stanley Black and Decker is now trading at less than 50% of its 52 week high. So if one is interested in these companies, their current prices might seem opportunities.
Or are the current prices just stopping points along the way down? Will we see major declines?
Who Knows
The financial press can tell us what is going on regarding innumerable companies, and 3M and Stanley Black and Decker are no exceptions. It is not difficult to find articles with all sorts of news and details about each. Statistics and stories are their stock in trade, so we shouldn’t be surprised to find what we find. But for all their words, no articles will definitively tell you “Now is the time!” or “Forget it, never touch them!”, or whatever. The decision is ours alone.
As it is said, sometimes stocks are low for a reason.
So It Goes
So now the full and honest truth. There is no single determinant of action. The only way to determine what do is to make a personal decision. Many times we wait, and many times we act early. No one can know tomorrow’s prices or tomorrow’s news. We take our best guess. Yes, we read and research, we look up information, and we study charts, and so on. But in the long run we just take a stab in the dark.
And that is not a bad thing. I could and can wait for the next crash, or I can act now. The next crash might come tomorrow or it might come in ten years. No one knows, and neither do I. Most of the time I wait, maybe I take a nibble, and wait some more.
In previous posts I mentioned how I have target low numbers for the stocks I own (the number is different for each stock). When prices decline to that target level, I start to get active. Of course, there is nothing keeping the stock from falling even lower. But since I have previously determined this target number after some research and thinking, I am confident it is an appropriate place to start to consider buying. As a result, despite always having second thoughts about when to buy, at least I don’t fall into analysis paralysis. And I know that the target number I chose is a substantial bargain to the stock’s history.
Sometimes the price of a stock bounces near but not below my target number. A dollar or two above, sometimes less than a dollar above. Do I take the plunge at those prices? Am I a stickler for the exact target price? Does it really matter? After all, the target number I chose was just an arbitrary amount I gleaned from looking at historical charts.
History
Alas, history tells us only about the past. It does not tell us about the future, and we can only invest for the future. We take our choices and they become our chances.
When I think “In two years the price today will be a bargain,” or when I think “Maybe this stock is on its way down forever,” I know that I have let projection take over my perspective. I need to remind myself that the price of a stock is often irrational, and what my goal is. My goal is income. Dividends. A low price just lets my dividends buy more stock than they would when prices are higher. That’s about it.
What is your perspective? Let me know here.
The Menhir de Champ-Dolent, largest menhir in Brittany, France. It is over ten meters high. “A menhir, standing stone, orthostat, or lith is a large man-made upright stone, typically dating from the European middle Bronze Age,” per Wikipedia. Photo © Guillaume Piolle / CC BY 3.0.
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