While most companies rely on buying low and selling high, it can be the most challenging way to accumulate wealth. Instead, a focused investor will strategize for more lucrative ways to make money. Below are several ways to create value for your business when you notice that your company share price is overvalued.
Price Action Strategies
There are two strategies to implement in your business. The first way is the value-investing. As the stocks go on sale from time to time, value investors wait for its sale price.
It’s easier to make profits during this time because the undervalued stocks have room to grow. However, note that the strategy may not work for your favorite stock since it needs to pay a dividend. Meaning, the price must be lower for you to purchase shares, and the shares need to trade each day highly.
The second strategy is momentum trading. AFR reports that it is best to buy the stock when it appreciates because the stocks tend to stay in motion as they continue to go higher. The downside of momentum trading is that it’s a short term strategy. It would be best to stick to a long-term plan for a better potential on the returns.
Invest for Dividends
Dividends have been long in-existent, although some people might think it is boring to invest in today’s high-tech world. Dividends can work in your favor, especially if you’re a long-term investor.
It gives you a steady income because there are lower chances of paying out dividends. Ideally, you can choose to pay dividends or not pay. Also, it lowers the original value for your assets or the stock you purchased.
Use a Covered Call
Using uncovered calls is a little more complicated because an investor has only one expectation-an increase or decrease in the underlying stock price. The strategy will help you generate income in the form of premiums, and it can be best if you are a long-term investor.
In this case, you’ll write call options on the asset to hold the underlying stock for extended periods with no expected price increase, although you’ll still generate premium for the account. However, you forfeit stock gains if the price goes above the strike price. If you don’t feel comfortable with it, you can go the usual way to buy stock and collect dividends.
Issuing shares may sound crazy, but it might be the best thing to help you increase your company share price. It’s the best time to re-strategize by building ground for the next downturn. Issuing shares enables you to keep the stock you have as you seek to get more money.
Also, you can create financial capacity when stocks get undervalued, making opportunistic acquisitions. However, you need to be careful with this strategy because investors may react negatively, especially if your company fails to earn returns from investments. To benefit from this strategy, ensure that your management stays disciplined in making investments that bring value so that investors do not shy away.
The Bottom Line
The best way to make money in the market is to invest for more extended periods by putting your money in high-quality stocks. However, you need to assess your options and try to stay objective. Ensure you take actions that capitalize on the market’s view when your company appears either undervalued or overvalued.