Author Topic: What does 'buy the dips' mean?  (Read 7637 times)

c3044897

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What does 'buy the dips' mean?
« on: August 04, 2015, 07:04:05 PM »
Hi all,

I am planning on putting a chunk of money into an index fund (Vanguard) and looking to top it up each year. I've heard the saying 'buy the dips' - which I'm assuming means purchase more shares when price has gone down. But are there any rules or principles you should follow? Like if it goes down X% ?

Thanks

Ricky

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Re: What does 'buy the dips' mean?
« Reply #1 on: August 04, 2015, 07:15:33 PM »
Any timing advice is bad advice. Just buy stocks as you can afford it.

Cougar

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Re: What does 'buy the dips' mean?
« Reply #2 on: August 04, 2015, 07:32:26 PM »
Any timing advice is bad advice. Just buy stocks as you can afford it.

true but having a strategy is fine like buying or selling on 50 day and 200 day moving averages.

and like august being the worst month for stocks for the past 50 years. i'm steadily contributing every 2 weeks but thats going to a money market fund until october. when october gets here and the seasonally stong period for stocks of november thru april comes around again; i'll move what i saved into an index fund; i could be wrong; but history is one my side.

forummm

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Re: What does 'buy the dips' mean?
« Reply #3 on: August 04, 2015, 08:09:27 PM »
Any timing advice is bad advice. Just buy stocks as you can afford it.

true but having a strategy is fine like buying or selling on 50 day and 200 day moving averages.

Many would argue that's not a good idea either. For example, the author of A Random Walk Down Wall Street.

acorn

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Re: What does 'buy the dips' mean?
« Reply #4 on: August 04, 2015, 08:22:01 PM »
and like august being the worst month for stocks for the past 50 years. i'm steadily contributing every 2 weeks but thats going to a money market fund until october. when october gets here and the seasonally stong period for stocks of november thru april comes around again; i'll move what i saved into an index fund; i could be wrong; but history is one my side.

wait, if august is the worst month (not sure if it's true), wouldn't you want to put money into stocks when they're at their cheapest?

also, agree with forummm and Ricky, just buy stocks when you have the money, can't time the market.

EDIT: A quick google seems to indicate that September's the "worst" month. But even then, to quote the site: "But also notice that there are lots of exceptions to the pattern. There have been bad Januaries, and great Septembers. And of course the biggest trend of all is that the market goes up over time. So maybe the lesson here is the usual one, that long-term buy and hold is the winning strategy."
« Last Edit: August 04, 2015, 08:26:24 PM by acorn »

mozar

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Re: What does 'buy the dips' mean?
« Reply #5 on: August 04, 2015, 08:40:29 PM »
I try to time a little bit, since I buy stocks once a month. But it's mostly impossible because I have to wait two days until the transfer goes through.

LLCoolDave

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Re: What does 'buy the dips' mean?
« Reply #6 on: August 04, 2015, 09:56:39 PM »
It could refer to holding a small cash reserve for a 10% correction. You would still DCA. They problem is we have been "overdue" for a correction for a few years meanwhile the market has had some pretty good times for the last 6 years. Strange times in the market. Most indexers say buy and forget it.

sol

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Re: What does 'buy the dips' mean?
« Reply #7 on: August 04, 2015, 10:01:23 PM »
and like august being the worst month for stocks for the past 50 years. i'm steadily contributing every 2 weeks but thats going to a money market fund until october. when october gets here and the seasonally stong period for stocks of november thru april comes around again; i'll move what i saved into an index fund; i could be wrong; but history is one my side.

I only buy on Tuesdays for the same reason. 

Wait, nevermind, that would be stupid.  For all of the same reasons.

Auckland Stubble

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Re: What does 'buy the dips' mean?
« Reply #8 on: August 04, 2015, 10:20:15 PM »
When the news headlines have people in Wall Street crapping themselves, that is a good time to buy.

When the news headlines have people in Wall Street giddy with excitement, that is a good time to NOT buy.

Simple really.

OneDollarAtATime

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Re: What does 'buy the dips' mean?
« Reply #9 on: August 04, 2015, 10:25:54 PM »
I try to time a little bit, since I buy stocks once a month. But it's mostly impossible because I have to wait two days until the transfer goes through.

I'm not sure I follow this.  Why not just set a limit order so you're locked in at / better than a certain price? 

Also, you can place the order first then transfer the money (trading on margin).  For example, if you know you're going to deposit $500 on Friday, you can do your trade on Tuesday and the money will come through on Friday.  I don't recommend trading on margin though (buying $50,000 thinking a stock will go up...but not having $50,000 in your account to pay for it).

c3044897

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Re: What does 'buy the dips' mean?
« Reply #10 on: August 05, 2015, 12:05:01 AM »
interesting...thanks guys. Unless there is some major correction sounds like the best approach to to buy when I can afford it.

Cheers!

MoonShadow

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Re: What does 'buy the dips' mean?
« Reply #11 on: August 05, 2015, 12:34:12 AM »
Hi all,

I am planning on putting a chunk of money into an index fund (Vanguard) and looking to top it up each year. I've heard the saying 'buy the dips' - which I'm assuming means purchase more shares when price has gone down.


That's what it means, but it's a form of trying to time the market, which is dangerous.  Just buy more shares when you have the chance, and don't let the market swings get under your skin.

MoonShadow

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Re: What does 'buy the dips' mean?
« Reply #12 on: August 05, 2015, 12:36:26 AM »
I try to time a little bit, since I buy stocks once a month. But it's mostly impossible because I have to wait two days until the transfer goes through.

I'm not sure I follow this.  Why not just set a limit order so you're locked in at / better than a certain price? 


That's great if you have access to a brokerage account, but not everyone does, and most mutual funds (excluding ETF's) don't buy or sell in the market anyway, so limit orders don't work.

soccerluvof4

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Re: What does 'buy the dips' mean?
« Reply #13 on: August 05, 2015, 04:30:38 AM »
Over the years I have learned to agree with most here just buy when you have the money. While i do admit since I add every two days I do usually will pick the day in that week that is in the red. But in the end all its because i have time. Set it up to be put in and forget it. If you want save a small percentage and if the market has a dip of at least 15% then throw that in. But anything else as is just trying to time the market.

OneDollarAtATime

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Re: What does 'buy the dips' mean?
« Reply #14 on: August 05, 2015, 06:40:35 AM »
I try to time a little bit, since I buy stocks once a month. But it's mostly impossible because I have to wait two days until the transfer goes through.

I'm not sure I follow this.  Why not just set a limit order so you're locked in at / better than a certain price? 


Good point.  They specifically mentioned stocks, but your point about the brokerage account is relevant.

That's great if you have access to a brokerage account, but not everyone does, and most mutual funds (excluding ETF's) don't buy or sell in the market anyway, so limit orders don't work.

johnny847

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Re: What does 'buy the dips' mean?
« Reply #15 on: August 05, 2015, 07:04:05 AM »
Over the years I have learned to agree with most here just buy when you have the money. While i do admit since I add every two days I do usually will pick the day in that week that is in the red. But in the end all its because i have time. Set it up to be put in and forget it. If you want save a small percentage and if the market has a dip of at least 15% then throw that in. But anything else as is just trying to time the market.
What? Don't try to time the market, except timing the market under my arbitrary threshold of 15% dips is okay?

larmando

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Re: What does 'buy the dips' mean?
« Reply #16 on: August 05, 2015, 09:04:54 AM »
Over the years I have learned to agree with most here just buy when you have the money. While i do admit since I add every two days I do usually will pick the day in that week that is in the red. But in the end all its because i have time. Set it up to be put in and forget it. If you want save a small percentage and if the market has a dip of at least 15% then throw that in. But anything else as is just trying to time the market.
What? Don't try to time the market, except timing the market under my arbitrary threshold of 15% dips is okay?
The only sensible way to do this is to allocate a percentage to "cash" (or short term bonds/CD/money markets), say 5%, and then rebalance, which will cause you to buy more on the low as your cash becomes a higher percentage on a total.
Anything else is wishful thinking.
 

larmando

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Re: What does 'buy the dips' mean?
« Reply #17 on: August 05, 2015, 09:07:17 AM »
Of course the cash percentage has no to very low returns, so your performance on average will be worse. On the other hand the cash is also handy in an emergency, and might help you sleep better/take advantage of a possible correction.

Gone Fishing

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Re: What does 'buy the dips' mean?
« Reply #18 on: August 05, 2015, 09:19:42 AM »
I try to time a little bit, since I buy stocks once a month. But it's mostly impossible because I have to wait two days until the transfer goes through.

Who are you buying from that takes two days?  Vanguard used to take an extra day or two when drafting from a bank account, but now you can get the day's close on anything submitted by 4:00pm.

Jersey Brett

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Re: What does 'buy the dips' mean?
« Reply #19 on: August 05, 2015, 09:24:43 AM »
Buy the dips means "I don't need my money, please take it from me." I'll give you my address and you can send a check. Dips can be retracements, where the market is going back up, or they can be preludes to crashes, the proverbial tip of the iceberg. It's 50/50. What you are trying to do is market timing. I do it successfully but I have ten years of mistakes to lean on. 95% of market timers lose most or all of their money.

Do as the nice people say and just dollar cost average.

Gone Fishing

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Re: What does 'buy the dips' mean?
« Reply #20 on: August 05, 2015, 09:50:17 AM »
Hi, my name is So Close, and I admit to attempting to time the market (just a little).

Like most, my 401(k) is on a fixed schedule so no timing there, but I have tried to time my taxable/IRA buys for the little bit of excitement I get from "getting a good deal".  I'd say I've probably done a poor job with the IRA's (need to quit) as I have tried to wait for larger dips (5-10%) that have never come, or come and go so fast that I miss the opportunity (last year's ebola scare for example) but while I don't have any records to support it, and like all gamblers, I feel like I have probably come out a little ahead with my taxable purchases.  Basically what I do is sit on a purchase for just a day or two if the market has moved up for 2-3 days in a row as usually some profit taking takes place and the market dips a bit, my signal to buy.  A "win" is usually around .25-.5% or so on the purchase, but I have certainly "bet" wrong on occasion as well, or missed the cutoff due to being in a meeting, too busy to check the market, ect. 

Let's say you gave yourself a one week window to make your purchase, even perfectly executed, you would probably only add a few grand to your stache over the accumulation phase using this method.  Your time would certainly be much better spent churning credit cards or learning some other value adding skill. For me, all it really is, is a little entertainment that helps the day go by, not some way to supercharge my stache.  Once I buy though, I am pretty much in it for the long haul.         
« Last Edit: August 05, 2015, 10:38:14 AM by So Close »

johnny847

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Re: What does 'buy the dips' mean?
« Reply #21 on: August 05, 2015, 03:00:11 PM »
Hi, my name is So Close, and I admit to attempting to time the market (just a little).

Like most, my 401(k) is on a fixed schedule so no timing there, but I have tried to time my taxable/IRA buys for the little bit of excitement I get from "getting a good deal".  I'd say I've probably done a poor job with the IRA's (need to quit) as I have tried to wait for larger dips (5-10%) that have never come, or come and go so fast that I miss the opportunity (last year's ebola scare for example) but while I don't have any records to support it, and like all gamblers, I feel like I have probably come out a little ahead with my taxable purchases.  Basically what I do is sit on a purchase for just a day or two if the market has moved up for 2-3 days in a row as usually some profit taking takes place and the market dips a bit, my signal to buy.  A "win" is usually around .25-.5% or so on the purchase, but I have certainly "bet" wrong on occasion as well, or missed the cutoff due to being in a meeting, too busy to check the market, ect. 

Let's say you gave yourself a one week window to make your purchase, even perfectly executed, you would probably only add a few grand to your stache over the accumulation phase using this method.  Your time would certainly be much better spent churning credit cards or learning some other value adding skill. For me, all it really is, is a little entertainment that helps the day go by, not some way to supercharge my stache.  Once I buy though, I am pretty much in it for the long haul.         

In the meantime, while you're sitting out of the market....
Quote
For the 1963-2004 timeframe, the findings were similar. The index gained at a geometric average annual rate of 10.84%, for a cumulative return on $1.00 of $73.99 over 42 years. If the best 90 trading days, or 0.85% of the 10,573 trading days, are set aside, the annualized return tumbles to 3.20% and the cumulative gain falls to $2.70."[/li]
[li]If the 10 worst days are eliminated, the annual return jumps to 12.79%, and the cumulative return increases to$154.52. With the 90 worst days out, the annual return rises to 19.57% and the cumulative gain to $1,693.68.

http://www.towneley.com/pdf/MT%20Study%2004.pdf

In the past, a majority of the stock market gains are found in an incredibly small amount of days. Over a 40 year period, if you missed the best 0.85% of days, your cumulative gain is cut by 96.4%!
Again, disclaimer, we can't simply project the past onto the future.

It's not about timing the market. It's about time in the market.

zephyr911

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Re: What does 'buy the dips' mean?
« Reply #22 on: August 07, 2015, 12:46:16 PM »
As stated above - if you have the funds lying around, you're better off investing them than waiting for the right time.

If the market tanked today, I'd consider extraordinary cost-cutting measures to invest more than usual, because any major crash is a clear buying opportunity. But I don't sell when it goes up in the hopes of buying lower. I spend absolutely no time worrying about weekly or monthly fluctuations, and only a little time on annual changes.

Cougar

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Re: What does 'buy the dips' mean?
« Reply #23 on: August 07, 2015, 01:32:12 PM »
and like august being the worst month for stocks for the past 50 years. i'm steadily contributing every 2 weeks but thats going to a money market fund until october. when october gets here and the seasonally stong period for stocks of november thru april comes around again; i'll move what i saved into an index fund; i could be wrong; but history is one my side.

I only buy on Tuesdays for the same reason. 

Wait, nevermind, that would be stupid.  For all of the same reasons.

um, i went to a lot of cash this summer as the mkt typically sells off over the summer and if you keep up with economic news like i do; you could see that it was a geater chance that there was going to be a sell off than consistently newer highs; and it's now negative for the year.


oh, and i also shorted the mkt on august 3rd; looks to be working out pretty well.


repeating myself, you cannot time the mkt but having a strategy like selling on consistent closes below a daily average and following historical trends like a weak august have been proven to work.  i'm not sure what you're basing your financial decisions on but please dont share them with me.

Cromacster

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Re: What does 'buy the dips' mean?
« Reply #24 on: August 07, 2015, 01:39:15 PM »
oh, and i also shorted the mkt on august 3rd; looks to be working out pretty well.


Wait, are you saying you shorted an entire index?

MoonShadow

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Re: What does 'buy the dips' mean?
« Reply #25 on: August 07, 2015, 01:48:59 PM »
oh, and i also shorted the mkt on august 3rd; looks to be working out pretty well.


Wait, are you saying you shorted an entire index?

I'm not him, but I've shorted entire indexes before.  It's a dangerous game to play, but it's exciting!

Tabaxus

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Re: What does 'buy the dips' mean?
« Reply #26 on: August 08, 2015, 02:08:37 PM »
Very easy to short an index.  Heck, you can get a 3x leveraged short ETF if you want to.

Dr. Pepper

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Re: What does 'buy the dips' mean?
« Reply #27 on: August 08, 2015, 03:14:10 PM »
Buy the dip, is generally a wall street euphemism that is used when the person invoking it believes overall the market is going up, but in the short term acknowledges this won't be a strait line. So in effect you are trying to get a better average price over time, by buying when the market has moved down say by 3-5%. The problem or risk is, as was already pointed out, you may be buying into a preceding bear market, where prices are going to average lower then your cost for some period of time (maybe years). If your agnostic about price levels until you need the money then that won't be an issue for you. One reason not to worry about it is  if you take the very long view, the market does go up over time. So as long as you hold for a long period( 15-20years), and are sufficiently diversified, the incremental return you get from buying dips, is not going to make a big difference compared to the compound growth of the companies you own over the period.

Lifestyle Deflation

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Re: What does 'buy the dips' mean?
« Reply #28 on: August 09, 2015, 01:16:23 AM »
I do try to buy the dips but I would echo the recommendations of the other posters.

Generally I buy index stocks every week. I buy Vanguard which trades at the end of the day. If the market (let's say S&P 500) is up I won't buy that day. If it is down 1% or more I will buy. I imagine this doesn't add up to a lot of gain, but 1% here and there could add up. Just my philosophy, I actually like seeing the market dive in my buying phase.