“Buying the dip” sounds brilliant in theory but it fundamentally requires holding on to cash outside of the market waiting for that dip to happen. An order of magnitude more gains have been lost waiting for dips that never come than have been made holding onto cash waiting for those dips.
I have a friend who sold it all in 2017 expecting the crash to come any day now. He’s still holding on to cash waiting for that dip. I’m sure in early 2020 he felt prescient and that this gamble would pay off. Only it didn’t, and he likely missed the one opportunity he had to minimize those lost gains. Not only does buying the dip require correctly guessing the bottom, but by definition you have to have the constitution to put it all in at the peak of bad market news.
Yes and no. There's buying the dip when you actually have the time and money to do a lot of this.
And then there's buying the Covid kind of dip. Personally I didn't sell early enough and I didn't buy back in early enough either. However I also never held onto lots of cash to buy the dip. I simply sold stock I had been holding for a very very long time already anyway, so yes I lost some opportunities but still made enough for it to be worthwhile.
Made up numbers for simplicity but if you have been holding for a long time and your return is 100%, if you sell when it say dips to 90% or 75% or whatever doesn't really matter as long as it then goes down further. That's why big dips like Covid are great for casual investors if you ask me.
Let's say it then goes down to 25% and then goes back up. You don't look every day, you don't trust it yet, because it's been going up and down in between but ultimately dropping down to 25%. But at some point it's been going 2 steps up, one step down for some time and you decide to buy back in at 50% of what your previous holdings had been worth at the peak. You still made a ton of extra money by selling and buying back into the dip.
I have a friend who sold it all in 2017 expecting the crash to come any day now. He’s still holding on to cash waiting for that dip. I’m sure in early 2020 he felt prescient and that this gamble would pay off. Only it didn’t, and he likely missed the one opportunity he had to minimize those lost gains. Not only does buying the dip require correctly guessing the bottom, but by definition you have to have the constitution to put it all in at the peak of bad market news.