Investors need to prepare, not time market

Q: I want to buy some stocks. Is there a best time of day, week, month or year in which to do so? — H.L., Lubbock, Texas

A: Not really. Guessing about it is “market timing,” which is not a road to riches. Instead, invest when you’re ready — once you have done enough research to be confident that the company is financially healthy and growing, has sustainable advantages over its competitors and has a promising future. You also want the current stock price to be low enough that it offers you a margin of safety and a good chance of growth. Some companies may be wonderful but so overpriced that they’re more likely to retreat for a while than to keep advancing over the next year or so.

Estimating a company’s fair value is easier said than done, though. Measures such as price-to-earnings (P/E) ratios and price-tocash flow ratios can help. Favor ratios that are lower than average for the company and lower than those of peers.

Once you’re confident you’ve found a great company selling at a good or great price, that’s the best time to buy. Fool’s School:

Savvy quotes

You can (and should) learn a lot about investing by reading great books on the subject — but you can also learn a lot from concise words from great thinkers and investors:

■ Warren Buffett: “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”

Common sense and the ability to resist acting out of fear or greed will go a long way toward helping you build wealth. You can outperform many Wall Street money managers just by hanging on to shares of an index fund for decades.

■ Peter Lynch: “All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.”

Mistakes and losses are inevitable, but some big winners can more than make up for them.

■ John Bogle: “If you have trouble imagining a 20 percent loss in the stock market, you shouldn’t be in stocks.”

You should expect big market drops now and then. Ideally, aim to snap up shares of stocks “on sale” at those times.

■ Benjamin Graham: “The individual investor should act consistently as an investor and not as a speculator. This means ... that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.”

In other words, always invest rationally, thinking through all your decisions carefully. If you’re buying on whims and trading frequently without having researched your investments, you’re speculating.

■ Warren Buffett: “Wide diversification is only required when investors do not understand what they are doing.”

If you’ve invested in many dozens of individual stocks, you’re spreading your money thin. It’s best to know your investments well and have your money parked in your 10 or 20 best ideas, not your top 100. If you’re not that comfortable, that’s OK — just opt for a broad-market index fund.

Name that company

I trace my roots to a 1962 store opening in Arkansas. Within about five years, I was a chain of 24 stores, with annual revenue topping $12 million. My founder bet correctly that small towns across America could support large stores. Today, I’m a retail giant, with more than 11,600 stores in 28 countries that serve more than 260 million customers each week. I’m the largest non-government employer in the world, with about 2.3 million workers globally, roughly 1.5 million of whom work in the U.S. I rake in close to $500 billion annually. Who am I?

Last week’s answer

I was born when two soap- and candle-making brothers-in-law joined forces in 1837. In 1933, I produced a radio soap opera, and I aired my first TV commercial in 1939. Today, based in Cincinnati, I oversee more than 20 consumer-product brands that each generate more than $1 billion in sales. Who am I? (Answer: Procter & Gamble)