facebookshould i always buy on the dip? that seems to be what investors are doing to maximize profits? - Seedly

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Anonymous

18 Apr 2019

Stocks

should i always buy on the dip? that seems to be what investors are doing to maximize profits?

Discussion (2)

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Isaac Chan

20 Mar 2019

Business at NUS

Hello! Read some stuff online so i'm going to summarise it here :)

1. Is it really a dip?

Like what Benny mentioned, you can't tell if it's just a dip where prices will bounce back, or if it's a trough or a cliff where prices continue to fall. If you bought during the market crash of 1987, the rebound would have been quicker, but if you bought into the 2008 depression, the decline in the market would be more gradual. So spotting the dip could be an issue.

  1. Financial Results

If you bought shares in any dip after a drop of 4%, you see a median return of 2.7% against 1.9% for just buying and holding for that period. This also seemed less risky, where you make returns 64% of the 3 month period compared to 63% if you just buy and hold. However, this is just the US market. For other economies like Japan, their performance can be much more different.

  1. Left out of the Market

If you are always waiting for a dip, you might end up being invested less than you can actually be. During these other periods, you can make pretty good returns as well. You might miss out on certain steady gains from buy and hold strategies are open to you throughout the season. I think this can be a big issue since you would always be waiting to be invested.

The key question in this thought is, how do you know if it's a dip or a falling knife?

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