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The Best Time to Invest in the Stock Market

Have you ever asked when would be the best time to invest in the stock market? If you did, then indulge me in a short game.

The graph below shows the widely watched US market indicator – the S&P 500 – from the start of 2009 to the end of 2010. Within this period, I had marked out – with a red circle and a blue circle – two occasions at which I had bought two different U.S. stocks.

The red circle corresponds to an S&P 500 level of around 900 while the blue circle corresponds to a level of around 1,100.

With these information in mind, would you like to guess which purchase – the red circle or the blue circle – has been the better investment so far?

2015-07 S&P

Source: Google Finance

The reveal!

In the table below I have tabulated the date and returns of the two stocks that I bought (I still hold both by the way). The red circle was the time when I bought shares of video game maker Activision Blizzard Inc while the blue circle was for the occasion when I bought a stake in online travel booking company Priceline Group Inc.

Activision Blizzard and Priceline Group's returns

Source: Google Finance; author’s calculations

Although my shares of Activision Blizzard were bought when the S&P 500 was trading at a lower level, it turns out that it was the shares of Priceline Group which have done way better relatively.

Given what we’ve seen, we can also say that the level of the S&P 500 isn’t the most important consideration for an investor when it comes to deciding when to buy shares.

A different view

The likely reason for Priceline Group’s great performance was its stellar growth in revenue, earnings and free cash flow over the past five years on the back of a growing trend of offline travel bookings moving online. Where the S&P 500 was trading at had less to do with Priceline’s share price performance than its business growth.

Priceline Group's Revenue, Earnings (EPS) and Free Cash Flow (FCF)

Source: S&P Capital IQ

With that, my experience with Priceline illustrates a key point about the best time to buy shares: The best time to buy may be when you find a great company within a growing industry that is trading at a reasonable valuation. It doesn’t really matter where the broader market may be at.

A Fool’s Take

At the local front, if you find yourself fretting over where the Straits Times Index (SGX: ^STI) is trading at, then consider switching tack and looking at the business fundamentals of the companies you’re interested in instead. There may still be opportunities for rewarding long-term investments regardless of whether Singapore’s market barometer is at an all-time high or not.

Of course, investing during downturns can be rewarding for investors (and may be even more rewarding than investing at a market top). But as my example with Priceline and Activision Blizzard shows, investing can be rewarding at any point in time so long as suitable opportunities turn up at your doorstep.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Activision Blizzard and Priceline Group.