“Buy the Dip!!” I am sure you have heard this before by friends, family, or even on your favorite financial network. Most media outlets are looking for attention grabbers. The “buy the dip” phrase really holds some truth, but it does not explain how this works. If you just grab companies or crypto assets without knowing when the price or value of the asset is a good buy, then this phrase holds no weight. Hopefully, I can give some insight and strategies of how the phrase “buy the dip,” can help, especially during this current correction of the market. As always, I am not a financial advisor, this is my personal opinion and how I am currently investing or viewing the market.
Let’s be clear, the market right now for stocks and crypto are crazy, if not uncertain. We have seen Bitcoin go from 69K to like 19-20K in prices and Ethereum go from 4k to like 1-2K. If you invest in the stock market you’ve probably seen companies take a nosedive like a fighter jet decreasing altitude. So, hearing someone say “buy the dip” is a tough pill to swallow. But honestly right now is the best time to buy assets that once were high and now essentially are on sell. In fact, Baron Rothschild, an 18th century nobleman explained the “best time to buy in when there’s blood in the streets”. Although extremely graphic, this is the hot take of the current market, things are on sell so why not get an undervalued stock or crypto asset at a lower price. Want to know how we got to this bear market and potential recession; I explain this in my other article: Bear With Me: What The Hell Is A Bear Market And How Do We Survive It? (publish0x.com).
The key thing here is to know that purchasing an asset whether its crypto or stocks is buying a business and you must know the value of said business. Whether it is through fundamental analysis (basically the stocks financial sheet) or technical analysis (stock chart to find the best pricing and trends). If the company does not make money, how can you get value or a return on investment (ROI). Let me back up by saying “buy and hold” is only for long-term investors those that plan to hold a stock a year or more.
Long-term holding helps with capital tax, I also explained that with crypto, but stocks follow the same guidelines (sort of), check that out here. If you are trader, you just need to worry about technical analysis and the current news for that stock ticker and make your plays based on the trend (bear/down or bull/up). Value is everything and picking the right price can potentially provide you with great ROI.
Strategies:
Price/Value
What is the high that the stock was trending for during the bull market and where is it now? Basically, you want to look at the percentages. If the percentage of a company you have been watching has dropped 50-60% or more and the fundamentals look good then invest long-term, this will help with your return on investment.
The value part is from the fundamentals, the stock/company needs to have positive net profits, in this current market we do not want companies that have extreme debt they will not be a good investment. If you are trading a company fundamental analysis does not matter. Debt during quantitative easing or easy money allowed these horrific companies/ assets to survive, this is seen not only in the stock markets but also with crypto assets. These companies now cannot stay afloat due to loans being hard to get because of increasing interest rates. Only the strongest survive, invest in the top companies.
Long-Term Plays
Now that we know how to evaluate companies, we should hold these companies for long term. That’s at least 5-10 years. Even though the stock may rise and fall, we are buying it base on the company fundamentals, ability to add growth and being top in its sector. Therefore, in the long run the ROI should be positive.
During the uptrend, the downtrend and market sentiments (fear or greed) we should plan our strategies accordingly. Maybe you made some profits from your long-term play, sell some of the assets and take your profit and reallocate your long-term portfolio (or buy different assets). You can also make money by option trading your long-term assets. Therefore, you can add liquidity from either and up or down trend market. You are never a loser for taking profits, a win is a win.
Mitigate Risk
When the media is telling you to do this or even people you follow regularly you should always be skeptical and do your own research, know you own risk. Investing is a risky business; everyone has a lost!! It’s just about how much you are willing to lose. If you invest in a company and know it's risky how long will you allow yourself to be invested in the company? If you are a trader, you understand the concept for risk. If you are an aggressive investor, you probably can stomach more risk, in contrast, if you are a defensive investor, you probably have a low risk tolerance. Depending on your goals as an investor will determine your risk tolerance. In addition, the sentiments of the economic environment will determine your investing style. It is not uncommon to switch your style to protect your portfolio. During bear, correction and possibly recession markets, mitigating risk is key (always key!!).
Contrarian Investing
Being a Contrarian investor is basically doing the opposite of what everyone else in the market is doing. With fear being at an all-time high, now is the time to be greedy, if and only if you have the capital to do so. The current market is an opportunity of a lifetime in crypto and the stock market. Most people have either sold their assets or just not investing at all. It is perfectly fine to wait on the sidelines, also it’s a great idea to produce more capital or liquidity by keeping your brokerage account well-funded to buy those assets you believe in. Now if you have the capital, it is great time to buy or even trade at your own risk. Most non-retail investors know that the market will always uptrend or correct and your ROI will be better if you get companies at the best price. So being contrary to everyone else, provides benefits.
Conclusion
The current state of the market, inflation, rising interest rates, and possible recession makes investors fearful and rightfully so. But this is the time to be greedy, buy those stocks that you wanted, that were way overvalued during the start of the pandemic. Being patient is your friend, so if you are not ready to invest in this market, continue to learn and grow your knowledge in investing, so that you can be ready the next time an opportunity like the current market presents itself. Make sure to do diligent research on what you want to invest in so that you can get winners during this market and if you are trading (on the downside) this is the type of market you dream of. #WAGM and All the Best!!
