Buying Shares Low?

consumer23

Hi,

I've heard many timees on the news and in the media that traders and other 'financially savvy' people say that the best time to buy shares is when they are low i.e. now.

I've had a little look around and my thinking or strategy would be to do just that, but at the same time buy shares that are low from companies that are well known and have been around for years and that have previously had very high share prices. e.g Lloyds Banking Group (in 2007 before the turmoil they were up at nearly 600p per share, now they are at 33p a share).

Similarly RBS were at around 600p per share during the same time in 2007b and now are a mere 22p per share.

The thinking is that they will return to their heights of 600p per share eventually and if they do, then I'll be quids in if I invest now.

To use a footballing analogy, it would be similar to comparing it to a team like Man City, who were 'down in the dumps' when they were a few leagues down from where they are now after having been in the top flight for quite some time, and are now back in the top flight doing well (as painful as it is for me to say that).

Is there logic and money earning potential to my theory?

Thanks

lisyloo

Is there logic and money earning potential to my theory?

Yes, it's nothing new.

somethingcorporate

The logic is nothing new except the companies (that you mention) constitution and structure and the markets in which they operated in when bank shares were 600p are nothing like what they are today or what they will return to. Past success is NEVER a guarantee of future performance, especially in a hot potato sector like banking where the government are determined to stick their oar in!

The football analogy is great for the team you have picked but equally I could pick one where the exact opposite has happened.

opinions4u

Yes.

Buy when the price is low.

If you'd bought RBS shares at 11p in 2009 you'd have doubled your money. If you'd sold them a few months back, you'd have quadroupled your money.

HBOS shares were over 1100p in 2007. In 2008 they fell so I bought some at 500p. Their value today (as part of LBG) is about 21p.

So my question to you, how do you know when the price is low?

To use a footballing analogy, it would be similar to comparing it to a team like Man City, who were 'down in the dumps' when they were a few leagues down from where they are now after having been in the top flight for quite some time, and are now back in the top flight doing well (as painful as it is for me to say that).

During those dark days for Man City, their local rival became Stockport County. I heard a City fan on the radio the other day, recalling a damp day sat in the open stand behind the goal at Edgeley Park with City 3 goals down at half time. It got worse in the second half. Indeed Stockport even used to market a DVD about all their victories over City in that period.

Putting it in to perspective, one time Championship side Stockport now languish in the Blue Square Conference.

Swindon and Bradford have dropped from Premiership to the fourth tier of English football.

What goes up very often does go down. And doesn't always come back up again.

Jimmbron

What defines "low"? Lower than it was? or Lower than it will be? The former you know, the latter you can't predict. And nor can the pundits who pretend they can. Unsurprisingly these pundits normally have a vested interest in making people trade....

IronWolf

You need to know what something is worth before you know whether the price is low.

RBS and Lloyds have had big government bailouts and have far more shares now than before, there is no way their share price is going back to where it was.

Ark_Welder

IronWolf wrote: »

You need to know what something is worth before you know whether the price is low.

RBS and Lloyds have had big government bailouts and have far more shares now than before, there is no way their share price is going back to where it was.

They might if you give it 60 or 70 years..;)

But in the meantime, a repeat of a post: http://www.bbc.co.uk/news/business-14851196

Thrugelmir

consumer23 wrote: »

I've had a little look around and my thinking or strategy would be to do just that, but at the same time buy shares that are low from companies that are well known and have been around for years and that have previously had very high share prices. e.g Lloyds Banking Group (in 2007 before the turmoil they were up at nearly 600p per share, now they are at 33p a share).

Similarly RBS were at around 600p per share during the same time in 2007b and now are a mere 22p per share.

The thinking is that they will return to their heights of 600p per share eventually and if they do, then I'll be quids in if I invest now.

So what do you know about these businesses that the market doesn't?

You are not backing a horse in the Grand National. But you may have better luck in picking a winner with fewer options to choose from.

Suggest you start by reading and learning. In the meantime keep your cash safely tucked up in ISA's.

lisyloo

So what do you know about these businesses that the market doesn't?

Personally I don't believe the market is behaving rationally at the moment and is driven by fear.
That doesn't automatically mean you can buy anything and make a quick buck, but prices are not being set by fundamentals at the moment which means there are opportunities.
Personally I think things will get worse before they get better so I'm waiting for the US figures out in October (although have my standard monthly ISA payments continuing).

atush

Buy low, sell high- the holy grail. I must admit to being a buyer in htis and past crashes/recessions starting after the tech crash. Made a bit buying after 9/11- some I still hold though.

I would leave out those depressed banking stocks for the minute as we could be heading (if not already in) a double dip. I might think of buying stronger banks o weakness caused by general market falls.

If you buy, you should be looking for large companies with good increasing dividends that are well covered and have historic low PEs. And ones that will or should hold up well if we have harder times to come. So pharmas, oil, etc. I would have said food, but even Tesco had their first falling sales in 20 years. I have bough Tesco in orevious recessions/crashes incl the fall after the tech boom.

Better yet you could buy funds, which will spread your risk.

Drip feeding into markets is always a good idea in turbulent times.

dealer_wins

A share in a company, like nearly everything else you can buy or sell, is only worth what someone else is willing to buy it at.

As for the examples of Lloyds and RBS, they have been diluted so much by rights issues that comparing their prices now to that of 2007 is wrong!!