Buying The Dip: What You Need to Know
A dip in the stock market takes place if stock prices fall from their highs. There could be several reasons which lead to a dip in the stock market. Visit MultiBank Group
What does ‘buying the dip’ mean?
“Buy the dip” refers to an investment tactic that follows the key principle of “buy low, sell high,” but with a more specific approach. There are two requisites to purchase the dip: a sharp fall in stock prices as well as a strong indication that they could rise again. A more common example of this would be when a big corporation’s stock price drops all of a sudden because of broad market fears and not due to concerns with respect to the company’s long-term performance.
How to buy the dip?
- Look at Sectors Hit the Hardest During Sell-off
In case you would want to follow the buy-the-dip strategy, check out the sectors which are worst affected by sell-offs. Looking for sectors with considerable price declines as well as assessing stocks, mutual funds, or exchange-traded funds which track them could shed light on buying opportunities.
- Buy Shares of Bluechip Companies With Big Drops
The pandemic slashed the share prices of many blue-chip firms that were offering steady returns. Yet, it turned out to be a blessing in disguise since it let investors lap up their stocks at impressive valuations. But do note that certain stocks haven’t recovered yet and still need to reach the valuation they had before the pandemic.
- Increase Your Investment Amount
If you’re someone with a steady job and a proper cash flow, you could consider increasing the investment amount to be able to buy the dip. You may choose to direct funds for other goals for some time and invest them in stock markets and purchase low-price shares. But, prior to doing this ensure you have covered all bases.
- Invest in a Staggered Manner
Rather than investing a huge sum of funds at once, invest in batches. Referred to as rupee-cost averaging or dollar-cost averaging, it is a strategy that enables you to buy shares throughout the dip. It even averages out the buying cost in time while also bringing down volatility.
When to buy the dip?
- When You Can Accurately Time the Market
If you’re great with market timings, you should buy in dip. But do remember that even the best investor is not able to accurately predict when the rates would increase or decrease. Hence, time in the market becomes more important as compared to timing the market.
- Understand Stock Fundamentals
You must not purchase a stock only because its price has decreased. You need to have a practical approach and assess a stock’s fundamentals prior to putting your money. A fundamentally strong stock would emerge victorious always regardless of markets. Begin with a basic valuation metric called the price-to-earnings (P/E) ratio to assess a company’s performance. Know more مجموعة ملتي بانك
The success of buying the dip investing strategy relies heavily on being able to ascertain future price movements. It could turn out to be well if you’re able to time the market.