In the stock market there is a common strategy which most of the investors (not all) follow is that sell the stocks when market is up and add to your holdings when market is down.
If the stock is up then it may be batter time to sell it and earn profit, or it may be right time to add your holding. Question is how to decide that if there is the time to sell the stock or if there is time to add holdings.
Yes at the same time both decisions are may be right because the long term investor always keep eye on the value while short term investor(trader ) keep eye on the price. As price and value are two different things. Value stands for the worth of a company and price is something which some one is ready to pay you for stock at certain time.
In the stock market it is common that market may rise or fall and behind this rise or fall there is no solid reasons I call them bubbles when such situation arise the prices of stock may go up or may fall, panic arises and most of the investors sell their stock. I don’t think this is a wise decision for an investor because he is ignoring the long term value of a great company.
A clever investor can make a guess then when this bubble is going to burst and then things will return to their actual position. But guess always cannot be true and no one can predict that the things may restore likewise. And you may be at receiving end.
So what to do?
If you are a long term investor you must keep eye on the fair market values or intrinsic value of a company rather than stock price. So you will be well aware about the value of stock.
So by doing this practice and after adding a margin of error you will be able to reach on a price which is good to buy stock, and when the market price match that price or may fall below that price you may buy. And when market goes up you have a profitable investment in your hand which will allow you many options.
There is another conservative formula which is being followed by many value investors i.e. Find great companies that the market has under priced.
Holding these stocks for long periods will generate wealth and when you observe that the company is no longer a great company you may shift to another company by selling out you current holdings
When stock market begin to realize that some stock is under priced it will be swept out forthwith then a long term investor should have to re evaluate the company and check that if fundamentals of the company have changed or not either in positive or in negative direction. As long as they are according to your calculation you can hold the stock.
If the fundamental have changed in positive direction one must hold is holding and let market rise and fall and if they have changed in negative direction one must move to another company.
It is a fact that no one can write hard and fast rule for sell and purchase of stocks many investors follow a self generated guideline and they sell and buy stock on percentage basis mean if price of stock climb or fall to a pre determined value. They decide to buy or sell.
In the end I advise that before deciding to buy or sell you must keep eye on fair market value and not on price.
