A few days ago I gave some suggestions for opportunities available during the current Russia/ Ukraine crisis.  I also mentioned some more safer options for those abit more risk averse.  It seems the market correction is now here and it's time to buy.  Or is it? 

What factors do we need to consider when buying the dip?

Active investing

Buying the dip is not passive investing and usually, when we get involved in our portfolio's, we start "lowering" those market returns.  This makes sense when you consider that the more transaction fees and taxes you have, the less "returns" there are for you.  They add up over time.

Length of the Dip

If you are considering to buy the dip, looking at the length of previous geopolitical crises, we need to be aware that it could take a while for the rebound to come.  It may not be as short as it was during the 2020 Corona crash as historical data shows.  Here i have created a chart from data compiled by LPL Research of some geopolitical crises and how many days to reach a market bottom (bear market) and days to reach a recovery (bull market) it took.

Exit

We need to consider when do we want to exit our dip or perhaps it would be better to buy a stock you really like that you want to hold for a long time.

The recovery from the market crash in 2008 took 1479 days compared to just 148 days from the Corona crisis.  If we look at the size of the market crashes, the crash in 2008 was a big one with a 56% crash compared to 34% in 2020, so it had a larger mountain to climb.

How big is the crisis?

Another factor to consider is, how serious is this crisis?   And if it is a serious crisis, is that bad for stocks?  Usually the central banks need to do extra special support for the markets during times of duress and this could lead to stocks climbing instead of falling.

How can we reduce the risk?

Geographical location

Instead of speculating on stocks in russia, you could buy the dip on US stocks with little exposure to Russia. 

Sector specific

When choosing stocks, it could be good to choose safer sectors that may not be so heavily affected by the upcoming turmoil.  A safe bet could be energy stocks or staples like Walmart and Unilever.

Diversification

You could also buy the dip on your favourite ETF which is diversified across a number of stocks, so you spread the risk, but also it has a flip side and reduces the possible gains.

Key Takeaways

-Buying the dip is active management and risky

-Dip lengths can vary wildly and are not predictable

-Risk can be mitigated but also reduces returns

Thanks for reading.

Disclaimer:  This is not financial advice, this article is for educational purposes only