Swings are the period in which the company’s stock value increases by more than 10 percent compared to the same period the previous year. If the stock is trading at $50 in May of 1998, for example, and its value is now $110 in 2005, then the year 2000 is called a “swing year.”
Swings are best-attended by stock enthusiasts because they represent great value and are often the most interesting time to buy a share of a stock. (If you have to ask, “What happened in 2000?” then maybe you need to sit back a little longer, but you’re probably not a stock enthusiast.)
To illustrate the importance of stock prices in determining the stock’s performance, consider this. If the company’s share price had increased by $50 in June of 1998, then by the end of 2000 the stock would be trading at $125. But you know the company is in good shape just by looking past the stock’s peaks. How many of you would be buying a share of this stock today if the stock’s price had remained at $50?
Swings are also a time when investors are looking for a good deal. This is especially true when stocks are near record highs. If stocks are trading at $75 today, then when the company is back at $75 or $80 in a year’s time, it’s probably time to sell a stock. In this case, the good years end and the bad years begin and the market is forced to respond in one of two ways.
One way is to sell shares, while the other is to purchase them.
Swings are not a good idea for a lot of reasons, however. For one thing, the momentum of a stock moves in one direction or the other faster than the stock price: If an investment is rising, then it is likely you will see the stock rise in the next few months to provide a sense that it will be just around the corner. But there are much better times and times to buy a stock.
Swings have the potential to cause a stock to lose its value. That occurs if a stock’s price rises too fast or is too low and then the market responds in either a large or in small ways, and the result is either a large rise or a large sell-off. Often a stock can be both rising and falling in a single day but that doesn’t imply that the stock has lost its value, and if it does, then the stock will soon rebound