Stock Trading and Other Things

How do i know if the stock has a good buy point,investing for the long term?

How do i know when to buy the stock when im investing for the long term. I know the golden rule buy low sell high. But when do i know if its low enough to buy. When i see a stock down like JNJ down 84 cents, would it be a good time to buy for the long term. Its just a example.Its not good to spend all your money on a stock the same day, its better to buy it throughout time right?

Public Comments

1. You should learn technical analysis.Its basically charts and trade patterns.Read Jonn Carters "mastering the trade".Its a really good book on analysis.Also, Go to thinkorswim.com. you can download their platform there for free and paper trade.It has really good tools you can learn and will also give you everything you need to learn about a stock.

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2. First, there may be some validity to some aspects of technical analysis involving market psychology (support and resistance come to mind), however, if you're investing on a buy & hold basis rather than speculating as a day trader, don't put too much effort in to it.

As for your question, there are several schools of thought when it comes to "when is a stock cheap enough", but by far the most prevalent theory among buy & hold investors comes from Benjamin Graham and David Dodd's "value investing" school.

Essentially, you're not looking solely at a stock price, but rather looking at the business as a whole in order to arrive at a theoretical intrinsic value per share of the business. In very basic terms, it involves a series of calculations made with information provided in a companies SEC filings to determine factors such as the company's growth rates, management effectiveness in utilizing earnings and investment capital, and business sustainability.

It's not something easily explained on Yahoo answers, but if you're serious about long term investing, particularly value investing, I'd recommend picking up possibly Graham's "The Intelligent Investor" (cheap), or for greater detail, Graham and Dodd's seminal "Security Analysis" (not as cheap), though the latter assumes some basic familiarity with finance and the market.

You also may want to try Morningstar's free investor classes online (http://news.morningstar.com/classroom2/home.asp?CN=COM), which take you all the way from Stocks 101 'Stocks vs. Other Investments' through to market theory, which delves in to the efficient market hypothesis as well as others. Fantastic classes, and they really don't make much of a pitch for Morningstar's premium services, which is a little surprising.