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Avoid Overpriced Stock
A key to successful long term stock investing is to avoid overpriced stock. In long term investing the point is to find stocks with a margin of safety and genuine intrinsic stock value. The value of these stocks is based upon their security as investments, their future promise, and their current prices. When there is a market rally the rising tide raises all ships, so to speak. To avoid overpriced stock the investor needs to compare stocks within market sectors and use fundamental analysis tools such as the price to earnings ratio to make sure that market enthusiasm has not driven a stock price to unsustainable levels. In addition a wise investor will also use technical analysis to avoid overpriced stock. Using time honored technical analysis tools such as Candlestick pattern formations investors as well as traders can reliably predict future movement of stock prices. By the use of Candlestick analysis it is possible to anticipate a profitable market reversal as well as a continuation of a price trend. By using both analysis of fundamentals and technical analysis of stock the buy and hold investor can successfully avoid overpriced stock purchases.
It is part of the psychology of investing that investors are tempted to buy a “hot” stock. The stock is in the news and its price is going up. There is the sense that the stock will just keep going up so it will virtually always be a good investment to buy it. That, unfortunately, is not true. Stocks level off in price and stocks go down in price. There are well run companies that always seem to make a profit and whose stock price has steadily risen over the years. However, buying these stocks when the market is hot virtually guarantees “flat” performance for a number of years. A way to avoid overpriced stock is to use an investment strategy that requires an anticipated forward looking income stream based upon the company’s fundamentals. This is the stock’s intrinsic value. To avoid overpriced stock the investor, or especially the day trader, will use market and stock price evaluation tools. Because stock prices fall into patterns and these patterns repeat themselves it is possible to predict the outcome of an emerging pattern. Thus the investor can search out a stock with strong fundamentals and a stock price that has not yet risen to the overpriced range. By applying Candlestick charting techniques to stock prices it is possible to anticipate a price rise instead of reading about it in the news. It is possible with the skilled reading of Candlestick patterns to avoid overpriced stock and build a stock portfolio based upon stocks that are due to rise in price.
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