This newsletter is intended to inform investors that some stocks have become expensive to purchase because the market has gone up by more than 10 percent (nearly 2000 points) since the presidential election.
Now that the Dow Jones industrial average has hit 20,000 along with new record highs in the S&P 500 and NASDAQ Composite, we investors need to be cautious about what price we purchase a stock. Why? Because stocks need to be purchased at a stock price that will have an upside for future appreciation. Now that may sound simple but it isn’t. Many investors make the mistake of purchasing stocks at new all time highs.
Your goal should be to buy stocks at a good entry point to take the risk out of your investment. A way to do this is to review the S&P 500 average P/E ratio. Presently the S&P 500 P/E ratio is 26. So when you are researching stocks for purchase, make sure to determine what its present P/E ratio is and try to buy a stock below its 3-5 year average. The calculation of the P/E ratio is the company stock price divided by its earnings. It is a good indicator to see how expensive the stock price is when comparing it to the S&P 500 P/E ratio. In addition, look at the stock price trading range and compare to its present price. You want to purchase a stock when the price is trading at the lower end of its range. This is easier said than done. This takes patience, but in most cases, you will have a chance of purchasing a stock you have researched when the market drops. Remember buy growth stocks with strong historical sales and earnings growth with a reasonable P/E ratio and price. We realize it not always possible to purchase a stock below its average P/E, but it’s very important to follow this principle. The problem that many investors have is they buy stocks when they are too high in price and sell stocks when a stock price drops in price. Be sure to stay the course of your investment planning and do not be distracted from other opinions. Make your own investing decisions by continuing to read and research the stocks you own.
Although the markets are at all new highs, we at CFE Finances still think you can make money in stocks as long as you do your research and have confidence in your stock purchases. Do-it-yourself investors should always be looking to buy stocks as well as selling stocks when it is time to take profits. For all our customers who are invested in stocks or are planning on investing in stocks congratulations! Stock investors in the current market are continually making money with stock price appreciation and stock dividend payouts.
Good luck and happy investing from CFE finances! We will be in touch with another newsletter soon. If you have any questions or concerns email us from our contact page.