This article is an excerpt from the Shortform book guide to "One Up On Wall Street" by Peter Lynch. Shortform has the world's best summaries and analyses of books you should be reading.
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What is the best time to buy and sell stocks? How can you tell whether a stock’s price is fair and reasonable?
There are numerous factors that determine the best time to sell/buy stocks. According to Peter Lynch, the author of One Up on Wall Street, there are two rules of thumb to follow when deciding whether to enter/exit the market for a particular stock.
Here’s when you should buy/sell stocks, according to Lynch.
Peter Lynch: Understand When to Buy and Sell
In his book One Up on Wall Street, Peter Lynch offers his take on the best time to buy and sell stocks. Lynch claims you should buy stocks when you feel 1) the company’s strong and 2) that you’re paying a fair price for what you’re getting.
Additionally, there are specific occasions when stocks come at a bargain. The first is at the end of the year, when companies sell off many of their stocks and you can snap them up cheap. The second is whenever the stock market’s doing badly. Though you might be tempted to sell at such times to minimize your losses, counteract your instincts and buy while stocks are cheap.
(Shortform note: Lynch advises you to buy and sell when you feel is best based on the company’s financial performance—in other words, to not buy or sell based on the emergence of bull or bear markets, as many investors do. A bull market is a market in which stock prices rise and the economy performs well. Many investors wish to buy stock in bull markets. Conversely, in bear markets, stock prices decline and the economy experiences a downturn. Investors withdraw money from the market, fearing loss.)
When it comes to selling stock, try to avoid selling too soon whenever possible. Lynch lists many instances in which he took poor advice and sold a stock that continued growing.
(Shortform note: Lynch notes that you should avoid selling early, but how can you tell when it’s too early and when it’s the right time to sell? One metric is media attention: If a company is garnering significant attention in the media, more investors will likely be drawn to the stock, which will drive the price up and eventually may cause it to collapse. You might thus consider selling just when you start reading about the company in the press.)
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Here's what you'll find in our full One Up On Wall Street summary:
- Why individuals fare better in the stock market than professionals and firms
- A no-nonsense approach to the stock market
- Why you shouldn't follow the complex predictions of so-called professionals
