Buying on the dips
Discussion
I've heard people mention this and buying up some extra when the markets drop (like they did back in Jan/Feb) but could/should it be part of a regular investment strategy?
If you had (to make it worthwhile) £500 per month to put into funds, is it best just to put that much in regularly, or maybe put in £300 each month and save some back for any 'dippy' events?
I guess that would mean if you had a few months of constant rises you would miss out on those rises to the tune of £200 a month. But in the middle of month three you could get a 3-4% drop and buy in at that point with £600....
If you had (to make it worthwhile) £500 per month to put into funds, is it best just to put that much in regularly, or maybe put in £300 each month and save some back for any 'dippy' events?
I guess that would mean if you had a few months of constant rises you would miss out on those rises to the tune of £200 a month. But in the middle of month three you could get a 3-4% drop and buy in at that point with £600....
All the advice would be to not try to time the market, trade the market or try beat the market as an amateur retail investors its just not likely to be profitable in the medium term.
That said if you think a particular equity is under priced or over sold then why not take a punt, as long as you're aware of the risk? I wouldn't do it on managed funds and etfs though as there is just no way you'll have the info, resource or foresight to beat the market. And hunches have a habit or being unreliable.
That said if you think a particular equity is under priced or over sold then why not take a punt, as long as you're aware of the risk? I wouldn't do it on managed funds and etfs though as there is just no way you'll have the info, resource or foresight to beat the market. And hunches have a habit or being unreliable.
My understanding (and I'm happy to be corrected on this) is like any market you'll have people believing prices will rise and people believing prices will fall. Of those actually active (ie prepared to buy or sell accordingly), if more think it will go up than down then they will buy more than people are selling and prices will rise. If more think it will drop than rise then there will be more selling than buying and prices will drop. This basically happens constantly, holding the price at a point where the two sides equal out.
In other words, at any one time the price is based around the average point where about the same number think it will go up as think it will go down.
Therefore, at any one time, no matter what the price, it is (according to all those buying and selling) about a 50/50 chance of it going either way (because clearly, if 80% thought it would rise they'd all be buying and it would go up until it balances again).
So whenever you buy, it's a simple coin toss as to what it does tomorrow/next week/next month, the actual risk stays the same.
My philosophy is invest what you're prepared to leave in for a long time. It might go up, it might go down, but long term it's a reasonable bet and you'll be making reaping dividends in the meantime regardless.
No loss is 'real' until you sell (or whatever you have invested hits zero so there is nothing left to come back) and no profit is 'real' until you sell and turn it back into cash. So worrying about short term rises and drops is a bit pointless really, unless you're going to cash in and out very quickly, in which case you're back to a flip of the coin as to what it will do over that period.
In other words, at any one time the price is based around the average point where about the same number think it will go up as think it will go down.
Therefore, at any one time, no matter what the price, it is (according to all those buying and selling) about a 50/50 chance of it going either way (because clearly, if 80% thought it would rise they'd all be buying and it would go up until it balances again).
So whenever you buy, it's a simple coin toss as to what it does tomorrow/next week/next month, the actual risk stays the same.
My philosophy is invest what you're prepared to leave in for a long time. It might go up, it might go down, but long term it's a reasonable bet and you'll be making reaping dividends in the meantime regardless.
No loss is 'real' until you sell (or whatever you have invested hits zero so there is nothing left to come back) and no profit is 'real' until you sell and turn it back into cash. So worrying about short term rises and drops is a bit pointless really, unless you're going to cash in and out very quickly, in which case you're back to a flip of the coin as to what it will do over that period.
I think it is more complicated than that, and buying in a dip is only a dip if it goes back up and there is no certainty. Now if you like a stock and want to buy or buy more, then when it appears down on against the trend/averages etc may be an opportunity but then you need to ask why it's fallen. Tesla has been a classic fools investor stock - not because lots are shorting it or that it seems to be way higher than the fundamentals, but over the weekend they announced they'd hit their 5000 cars in a week target, out of hours trading sent it high, the people who were long piled more in thinking its boom time and by the end of the day it was down 10%. Buy on the rumour sell on the fact. The moral is most people don't really understand whats driving the share price. But Tesla does have another quirk, there are so many people shorting the stock - selling before they buy, there might be an opportunity to predict buying frenzies when the shorts have to cover their sales. But end experts with their big computers will largely have this covered so where's the gain for you or I? Its not as if nobody has thought of this before.
Generally I buy for the long term but I am dabbling in Tesla because is has quite wide mood swings. It seems to get a lot of support once it drops to 280 and seems to get a nose bleed when its at 370, but that $90 or 30% swing gives some latitude. Its down at 310, if it drops below 300 I'll buy, and when it gets above 350 I'll sell - if it takes forever to get there then so be it, if it takes 4 weeks which it did last time then I'm laughing. Its more of a fun bet and its paid for my tyres and servicing but i imagine that's the type of approach your thinking, You need a cyclical stock where you're happy with where the limits are and be prepared to stay invested or take a loss if the master plan doesn't pay off. If there was certainty everyone would do it and the potential gain would shrink.
Generally I buy for the long term but I am dabbling in Tesla because is has quite wide mood swings. It seems to get a lot of support once it drops to 280 and seems to get a nose bleed when its at 370, but that $90 or 30% swing gives some latitude. Its down at 310, if it drops below 300 I'll buy, and when it gets above 350 I'll sell - if it takes forever to get there then so be it, if it takes 4 weeks which it did last time then I'm laughing. Its more of a fun bet and its paid for my tyres and servicing but i imagine that's the type of approach your thinking, You need a cyclical stock where you're happy with where the limits are and be prepared to stay invested or take a loss if the master plan doesn't pay off. If there was certainty everyone would do it and the potential gain would shrink.
A dip is only a dip in retrospect, as the general understanding is that the word means a temporary drop in price.
So yes, if you buy before it goes back up you’ll make money, but how do you propose to spot a dip before it has formed?
The fact is you are referring to buying in a falling market. In practice it is the same thing, it’s just that your phrasing makes it seem more appealing.
So yes, if you buy before it goes back up you’ll make money, but how do you propose to spot a dip before it has formed?
The fact is you are referring to buying in a falling market. In practice it is the same thing, it’s just that your phrasing makes it seem more appealing.
Heres Johnny said:
I think it is more complicated than that, and buying in a dip is only a dip if it goes back up and there is no certainty.
Which is kind of what I'm trying to say. At the point you buy it isn't a dip, it's merely the point at which there's a roughly even disagreement about which way it goes next. James_B said:
A dip is only a dip in retrospect, as the general understanding is that the word means a temporary drop in price.
So yes, if you buy before it goes back up you’ll make money, but how do you propose to spot a dip before it has formed?
The fact is you are referring to buying in a falling market. In practice it is the same thing, it’s just that your phrasing makes it seem more appealing.
Exactly. If everyone thought it was a dip everyone would be buying and it wouldn't be a dip. So yes, if you buy before it goes back up you’ll make money, but how do you propose to spot a dip before it has formed?
The fact is you are referring to buying in a falling market. In practice it is the same thing, it’s just that your phrasing makes it seem more appealing.
Basically, trying to buy in dips is like saying 'I'm luckier/smarter/better informed than most other people'.
Are you..?
When we get graduates onto the trading desk they very often have clever but simple schemes that they think must make money, but they always just rely on one of two suppositions; if a price is moving one way it will keep moving, or if a price has moved one way it will come back the other.
If it were this simple then trading would be a much easier job, but there are a few good and clear reasons that it is not this simple.
There can be exceptions, I think. The markets can overreact to unexpected news, for example, and it may be possible to fill an irrational order knowing it is likely to revert. Another thing that you sometimes see in less liquid markets is that big names getting stopped out drive prices beyond what makes sense and, again, taking the other side might work.
I sold a product at an all-topime high print recently, fairly confident that the move could not continue.
I was right, but was I actually sensible, or just lucky? It takes years of doing this to even start to answer that question.
If it were this simple then trading would be a much easier job, but there are a few good and clear reasons that it is not this simple.
There can be exceptions, I think. The markets can overreact to unexpected news, for example, and it may be possible to fill an irrational order knowing it is likely to revert. Another thing that you sometimes see in less liquid markets is that big names getting stopped out drive prices beyond what makes sense and, again, taking the other side might work.
I sold a product at an all-topime high print recently, fairly confident that the move could not continue.
I was right, but was I actually sensible, or just lucky? It takes years of doing this to even start to answer that question.
I'd thought about buying glencore when it fell massively this week but then remembered the last time I did that (about 8 yrs ago) on another share and the 'dip' turned into a rout and the company went tits up.....! So I didn't and er, well, perhaps I should have stepped in after all.....mind you - there's probably still time with glencore, I think (knowing nothing about the company...) perhaps? Oh forget it.
Thanks for all the viewpoints, all makes sense. I think I was thinking more of a long term holding of an index/fund that rises over the very long term, and unexpected shocks that cause it to fall (like in January), rather than forecasted valuations, monitoring company performance etc.
So if an index was 10,000 today and might be expected to be 30,000 in 20 years time (as an example) if it randomly dropped 5%+ in a couple of days that would be a good time to buy extra - the only drawback being that the money you had held back to buy the extra could have been increasing over the previous months, including generating dividends.
I started paying monthly into a company pension for a few years from October 2007, pretty much correlating with the extended fall in the stock market, which at the time made me think I was losing money, but when I look at the price of the fund now I realise that I was just buying at a discount.
So if an index was 10,000 today and might be expected to be 30,000 in 20 years time (as an example) if it randomly dropped 5%+ in a couple of days that would be a good time to buy extra - the only drawback being that the money you had held back to buy the extra could have been increasing over the previous months, including generating dividends.
I started paying monthly into a company pension for a few years from October 2007, pretty much correlating with the extended fall in the stock market, which at the time made me think I was losing money, but when I look at the price of the fund now I realise that I was just buying at a discount.
I've been wondering recently, with the rise of index funds and more and more people avoiding timing the market in exchange for drip feeding; is this why buy the dip works so well? Is there enough money in drip feeding than any dips are basically being topped up by that money, so it continues the long term trend of upwards. Whereas if a lot more tried to time the market they might see a dip, wait longer to buy cheaper, causing a bigger dip or it to become bigger than a dip.
ScotHill said:
Thanks for all the viewpoints, all makes sense. I think I was thinking more of a long term holding of an index/fund that rises over the very long term, and unexpected shocks that cause it to fall (like in January), rather than forecasted valuations, monitoring company performance etc.
So if an index was 10,000 today and might be expected to be 30,000 in 20 years time (as an example) if it randomly dropped 5%+ in a couple of days that would be a good time to buy extra
But it doesn’t work like that. For one thing, why would it be expected to grow to a certain level?So if an index was 10,000 today and might be expected to be 30,000 in 20 years time (as an example) if it randomly dropped 5%+ in a couple of days that would be a good time to buy extra
More importantly though, if you are discussing the forward price as opposed to an expectation, if the spot drops a certain percentage then to forward normally does too.
You are relying on the idea that if a stock or fund drops that that makes it more likely to move back up but that is not the case.
clubsport said:
As a poster above said they recently sold a possible high in an asset, I assume that was mentioned as you can't be sure and if that was the high, it will be remembered as most of us manage that a few times in a trading career!
Only by a basis point, though, and it’s lower now. I still have the position on, but there are a lot of buyers still out there, so we’ll have to see.
clubsport said:
Good luck with the trade, I wasn't criticizing your trading, I was just trying to point out for many private investors how rare it is for expert traders to trade at peaks & troughs in products they follow intensely.
In my experience trading exact highs and lows rarely works out perfectly, as more often than not the print results in a partial fill !
Agreed, and as I say, even if you do get a fill, you really cannot tell how much was luck and how much was judgement.In my experience trading exact highs and lows rarely works out perfectly, as more often than not the print results in a partial fill !
James_B said:
Agreed, and as I say, even if you do get a fill, you really cannot tell how much was luck and how much was judgement.
Always better to be a lucky trader than a good trader! But really, nobody knows what is going to happen, and while with experience you manage to understand a market better and can better judge the dips and highs, everyone has put on what they thought was a sure-bet only for the market to do things you dont expect.
I'm a retailer by profession and invest in my business where I know what I'm doing.
Before the banking fiasco I was quite content to get 5% plus on safe bank interest rates.
Often I was getting 7% plus....remember those days.
Then all the balls started falling and like many in my position I started looking where I might find a decent return on my spare cash,outside of my business.
BTL looked interesting and stocks and shares also beckoned.
Property I could understand but I'm used to being able to do "good" deals that give me an edge but like any business venture it takes time to build the contacts and I found the estate agents to be very shallow and got frustrated.
I have invested in BTL in a modest way and it's ok but now with the new legislations etc.its not so appealing to an amateur.
So to share dealing.
I was reluctant to venture into this area as by nature I'm a cautious chap and I realised that the markets are unpredictable for an amateur,if it was simple to win everybody would be doing it.
I have invested long term in several funds that I do monitor but basically leave them as is.
A couple of years ago the one single share I did invest in was ABF because I knew that Primark wa a well run company and could actually see ,every week that I visited a store,how busy they were.
I bought in at £29.20,on a dip,and they pottered along then 2 months ago they rose to £33 ish.
I shoiuld have sold ,I knew I should have sold but I made a fatal mistake of an amateur I'd become "attached" to holding the share,stupid boy.
Now it's about £25 ...Primark is still trading well but the sugar market is under pressure.
I'm holding them because I fortunately don't need the money but will I sell when they reach say
£31 ,honestly I don't know because I'll be thinking will they go to £33 as some brokers seem to think.
That's what can happen when an amateur goes head to head with the big boys.
Before the banking fiasco I was quite content to get 5% plus on safe bank interest rates.
Often I was getting 7% plus....remember those days.
Then all the balls started falling and like many in my position I started looking where I might find a decent return on my spare cash,outside of my business.
BTL looked interesting and stocks and shares also beckoned.
Property I could understand but I'm used to being able to do "good" deals that give me an edge but like any business venture it takes time to build the contacts and I found the estate agents to be very shallow and got frustrated.
I have invested in BTL in a modest way and it's ok but now with the new legislations etc.its not so appealing to an amateur.
So to share dealing.
I was reluctant to venture into this area as by nature I'm a cautious chap and I realised that the markets are unpredictable for an amateur,if it was simple to win everybody would be doing it.
I have invested long term in several funds that I do monitor but basically leave them as is.
A couple of years ago the one single share I did invest in was ABF because I knew that Primark wa a well run company and could actually see ,every week that I visited a store,how busy they were.
I bought in at £29.20,on a dip,and they pottered along then 2 months ago they rose to £33 ish.
I shoiuld have sold ,I knew I should have sold but I made a fatal mistake of an amateur I'd become "attached" to holding the share,stupid boy.
Now it's about £25 ...Primark is still trading well but the sugar market is under pressure.
I'm holding them because I fortunately don't need the money but will I sell when they reach say
£31 ,honestly I don't know because I'll be thinking will they go to £33 as some brokers seem to think.
That's what can happen when an amateur goes head to head with the big boys.
Condi said:
avinalarf said:
stuff
I wouldnt beat yourself up. Its well known that most fund managers under-perform a market index and everyone knows what they should have done after the event. Even the professionals get it wrong on a regular basis (and I count myself in that bracket!). I do however get a tad frustrated that I don't know everything about everything.
avinalarf said:
No ...I'm not beating myself up...just relating a story of our times.
I do however get a tad frustrated that I don't know everything about everything.
I'm slightly more philosophical. I only want to know one thing. What the price will be tomorrow. Sadly, I've still not found a way to reliably crack that. I do however get a tad frustrated that I don't know everything about everything.
I was talking to a guy who does investments for a $20B insurance company and he gave me his take on index trackers. A good fund manager could outperform the market over time by 2% and they charged you 2% for the privilege. Some guy worked this out, do a tracker at 0.1% fees and it took off. The outturn to the investor was virtually the same after fees. I tend to invest in trusts over individual stocks, I don't have the time to check individual shares and feel thats their job to get it roughly right and if I follow the market rates I'll probably be ok long term. What makes me laugh is stock like Tesla shares, the Nasdaq has outperformed it over the last 3 years or so years but some still think its a rapidly growing stock. You'd have been better buyign a NASDAQ tracker. but then hindsight is wodnerful
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