When is a Good Time to Invest in a Specific Company?

Investing in a company can be done either by acquiring a private equity holding (also known as private placement), buying into the public offers, or buying the shares of that company on the stock exchanges. When you buy a stock, you are in effect getting some ownership in that company. All traders should understand the importance of timing which it comes to investing in a company’s stocks.

1) Private placements happen when a company decides to sell a part of its stake to a few high profile individuals, and this is usually done when the company is young and yet to go public. Investors can take advantage of such opportunities as this is when the stocks are cheapest and can be bought in large volumes. You can make a lot of money if you decide to sell, but also if you see that the value of your holdings will appreciate if you hold onto them.

2) Public offering: An investor can buy shares in a company with a good valuation through a public offer. A company may decide to go public via an initial offering, or to raise funds if they are already in the capital market using public offers.

3) Actively trading stocks that are already listed on the market: When investing in a company stock on the secondary market, the trader has to take a more detailed look at the investment to decide the right time to buy. It is the general belief that buying a stock when it is “cheap” is the best time to invest in a company…but this is not always true.

So when is the right time? If you have the opportunity to buy into a private placement, and the company has potential, then you should go for it, especially if you are a long term investor and have enough money to do this. But the best time to buy into a company’s stock for capital gains is when the stock is undervalued and is not creating a buzz…yet. As soon as there is a positive development and the company commands market attention, the demand will push the share prices up.

Successful entrepreneur Warren Buffett once said that you should buy an undervalued stock with market potential as early as possible, when the market is still “fearful”. So get in early, analyse the markets for good opportunities, and be smart when you trade by going against the grain.

But what about the difference between investing in small cap or large cap stocks? Does this matter when it comes to timing? Small companies can begin to rebound in growing economies faster than larger companies because their collective fate is not tied directly to interest rates and other economic factors when it comes to growth. Small companies have less committees, fewer layers of management and other obstructions that may exist in the typical bureaucratic organisation of large companies.

So when the economy begins to emerge from recession and starts growing again, small-cap stocks can respond to the positive environment quicker and potentially grow faster. Small companies typically raise most of their capital from investors (by selling shares of stock), as opposed to borrowing money (by issuing bonds) like larger companies. Therefore, higher interest rates have less negative impact on the ability of small companies to grow because they do not rely heavily on loans (bonds) to expand operations and fund projects.

If you decide to invest in large-cap companies, do it with a time frame of at least two years, and accumulate companies that have been around for more than a decade and have shown consistent performance over the years.