It's Not as Easy as Buying the Dip
“All past declines look like opportunities and all future declines look like risks.” – Morgan Housel
Investing comes down to psychology and time more so than skill and knowledge. How you behave during times of market volatility will ultimately determine your success as an investor.
I’ve stated in previous posts that volatility and market unpredictability should be expected. If you aren’t able to wrap your head around this, then investing in the stock market may not be for you.
How frequently should we expect market downturns? This chart from T. Rowe Price sums it up nicely:
Experiencing market corrections and even bear markets can be a good thing. Going through these downturns make you realize who you are as an investor. You may find that you weren’t capable of taking on as much risk as you thought. And that is ok!
Like all things, you learn through experience. The cliché sayings of, “be greedy when others are fearful”, “buy low, sell high” or “buy the dip!” all sound great in theory. We can try and convince ourselves that we will react rationally when markets experience turbulence, especially to the downside.
But when markets start the year in correction territory, inflation is running rampant, and we are hearing the rumblings of WWIII, you may not feel as confident.
Buying the dip doesn’t sound as sexy now as it did a year ago. Maybe you feel like this will never end.
Even amidst all of the negative print, the S&P 500 is only down roughly 11% year-to-date. Does it suck when your accounts go down? Absolutely. But does an 11% decline completely ruin your financial dreams? I hope not.
So, is it time to panic? For some, they have been calling this for years. I will never pretend like I know the answer. Just like the rest of you, I have no idea how the markets will react over the next 9-months. Could it get worse? Absolutely.
Looking at the moves this week serve as a great reminder that staying invested can be your greatest decision. On Monday, the S&P 500 was down 3.5%, the worst day since October 2020. Then on Wednesday, the S&P 500 was up 2.6%, its best day since May 2020.
That is exactly why I don’t ever try and time the market. I’d rather focus on being in the market and adding to my positions when I have the funds (which is a story for another day). How costly can it be trying to time the market? This graph illustrates the point:
So, during these times, you need to answer the question, ‘Why are you investing?’ Because unfortunately it’s not as easy as just buying the dip.
- . Kyle
Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual.