- ‘How do I know when the market is ready to surge’
- ‘How do I know when I should pull out of the market?’
Maybe you’ve heard the saying “Sell in May and Go Away” and you don’t want to rely on just an old wives’ tale.
These questions are certainly important. When we think the market is currently undervalued and is ready to climb to new highs, we would obviously like to invest more money (perhaps with CSS Partners), and therefore reap the rewards of our investments. But, when the market is too high is ready to take a plunge, we’d sure like to know when we should grab our money and run! While these things would be great to know, nobody has a crystal ball that can pinpoint when the stocks will rise and fall, but we do have indicators that may give a clue that something is coming, either good or bad.
Common Indicators for a Market Shift
For the most part, there are two types of investors in the world. There are Fundamentalists and then you have the Technical investor. The Fundamentalist bases his decisions on the ups and downs of the market. In other words, he/she looks for movement in the market in order to predict the next market shift. One of the common indicators for when they take their money out is the double peak. When the market (or a particular stock) rises to a relatively high value, then plummets, and then returns to that same high value or higher, this indicates to the fundamentalist that the market price will likely fall again. This is when they would accept their profits and get out of the market. There many other types of indicators of course, but this is the most well-known and makes for an easy illustration.
The Technical Investor looks at formulas and ratios in relation to the stock that they’re viewing. One of the most important is the ratio or the company’s asset to their debts. If they have more liabilities than they have assets, this is typically an indicator to get out of that particular stock. The other important indicator for a technical investor is the P/E ratio (which stands for Price per Earnings). When the price of the share is quite high in relation to the actual earnings of the company, the stock price is most likely inflated and indicates a future downturn of the stock.
Another Indicator – Your Age
Sometimes an indicator to get out of the market has nothing to do with Wall Street or the economy. It may just be your age. If you are 60 years old and have a large nest-egg saved up, you most likely don’t want that money sitting in the volatile stock market. After all, what if the market takes a turn for the worst? You might get stuck working until you’re into your 70s. There’s no gain that’s good enough to take that kind of risk. If you are only years from retirement, you’ll want to shift most of your retirement funds out of the market and into a safe, low risk investment.
What indicators do you rely on to pull out of your investment?