Many people invest because they think they can outsmart the market by identifying and taking advantage of patterns and trends before other investors do. That's tricky. Instead of calculating based on actual numbers (and adding in a [margin of safety](https://trendshare.org/how-to-invest/what-is-a-margin-of-safety) to protect against the unknown), they try to predict the behavior and beliefs of countless other people. Even if their decisions ignore the underlying business value of stocks, their trades move the market too. ## Why Do Business Values Fluctuate? Stock prices *do* move because business valuations change. When Canadian Maple Syrup Inc announces that it's going to spend $100 million dollars building a new factory and won't pay a dividend in the next quarter, some people will sell. In fact, it won't record a *profit* in the next quarter because it's putting so much revenue into expansion. There may be good business reasons to build the factory (as an investor, you certainly hope so), but some people *will* sell the stock because they want that dividend—they want a business which has profitable quarters. None of that makes this a bad investment. It may get even better, if sellers drive the price down to a good discount. Another company may announce that it's *losing* money—not investing all of its profits in growth, but actually *losing* money. That stock's price will probably drop due to its financial situation. Neither situation is irrational. Both situations have roots in the actual financial performance of the business. Perhaps not every trade related to the stock will reflect a concrete valuation based on business value, but these decisions give concrete evidence as to why the stock's price will change. ## Price Changes Create Opportunities To Invest Even though the market isn't always rational when it prices a stock day to day, value investors have many opportunities to buy great companies at good prices. The important questions are how to identify the how and when to buy stocks to take advantage of those opportunities. To exploit a market inefficiency for a stock, you must understand the value of that stock and the story behind the business. Is it a cyclical business? A short-term hit to profits and dividends for Canadian Maple Syrup Inc hopefully represents greater growth in the long term. If you're in it for five or ten years, the [discounted price](https://trendshare.org/how-to-invest/what-is-intrinsic-value) you'll pay today may be worth the value you get over that period (even with the missing short term dividends). You can't necessarily predict the [free cash flow or owner earnings](https://trendshare.org/how-to-invest/what-is-discounted-cash-flow) the business will realize with the new factory, but you can go back to your discounted [present value](https://trendshare.org/how-to-invest/what-is-present-value) calculation to see if the price has dipped to the point where it's an obvious bargain. What if the price drops further? This question scares some people away from good opportunities! [Bigger price drops mean better bargains](https://trendshare.org/how-to-invest/when-stocks-go-on-sale). Perhaps you can buy more stock and make a bigger profit in the future. That can be difficult to swallow as you question your underlying valuation—what if you did the numbers wrong? Keep your [margin of safety](https://trendshare.org/how-to-invest/what-is-a-margin-of-safety) in mind. Yet don't mistake short term losses on paper for long term problems. If you never invest, you'll *never* lose money—and you'll also never make money. ## Should You Sell in May and Go Away? What's the right time of year to buy stocks? One piece of market folklore ([Sell in May and Go Away](https://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp)) suggests that the market tends to reach a high point in May or early June and then drop until September or October before climbing again. This rule of thumb (the first warning sign) purports to explain observed behavior (a second warning sign) of the market as a whole (the third warning sign). Investors and analysts and brokers *do* go on vacation in the summer months and have less time or desire to invest. The volume of trades *can* go down in this time period—but what does that have to do with the price of any particular stock? Even if you've invested heavily in an [index fund](https://trendshare.org/how-to-invest/buy-the-s&p-index-fund) (as you should), knowing *when* to sell (and face short term investing tax penalties) and when to buy a stock back (and pay trading costs both times) will be difficult. You'll lose out on dividends and unexpected gains. If the dip in price is true and you [reinvest your dividends](https://trendshare.org/how-to-invest/what-is-dividend-reinvesting), you'll actually reinvest at a discount (thank you, dollar cost averaging!). If you're investing over a period of decades, the minor fluctuations of a couple of percent over a couple of months isn't worth getting upset over. ## When to Buy and Sell Stocks Because the market is so often irrational in the short term—one day, there might be more sellers than buyers, and the price per share may drop more than the sellers intended—a great stock can go on sale for reasons unrelated to its financial position. To exploit that possibility, you need a list of good potential stocks to buy, a list of fair prices you think they're worth, and the cash on hand to take advantage of these bargains. The best time of day to buy stocks is when they're on sale. The best time of year to buy stocks is when they're on sale. Keep your stories about these stocks up to date. Understand why you believe they're worth what you think they're worth. Don't let market hype pro or con sway your valuations or tell you when to buy and sell stocks. The right time to invest is when you've found a bargain. That may not be in May. That may not be when an analyst changes the target price. That's when *you* have the right opportunity to buy the right stock for *you* at the right price.