29 September 2021
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Buy the dips!

Peter Switzer
16 July 2009
I have said this before, but I will say it louder and clearer — buy the dips. Buy when everyone is panicking and selling, and buy believing the worst on the stock market is behind us.

That doesn’t mean it won’t fall, but the long-term investor wanting to build wealth over the next five to 10 years should be collecting great stocks, which pay great dividends. You could even look at some beaten-up small cap companies with a great brand in industries that have potential, on the basis they have been oversold and the big cap companies have been favoured by the early buyers in the market. 

Improving market

On my SWITZER program two nights ago, I asked the CEO of Northward Capital, Darren Thompson, whether it was time to get back into the market before US companies started to report in earnest. Recall that I thought that US companies would report well, and so far, so good!

Thompson said his father had asked him the same question for his super fund over the previous weekend and he advised him to get in before the good news came out.

He said even if the news disappointed, it was an opportunity to dollar-cost average into a market that was on the improve. For those who don’t understand dollar cost averaging, in simple terms it means if you bought, say, five selected shares using $5000 each month and if the shares fell in value by half, you would get double the amount of shares and the average dollar-cost of each share would fall. 

How it works
Another way to look at it is like this: you bought 1000 Macquarie shares at $50 before the market crash, but had the guts to buy another 1000 of them at $20 when the credit crunch hit hardest. You now have 2000 shares with an average dollar cost of $35. And now they are getting close to $40, you are up $5 on every share!

The reality is that if you had the strength to buy your favourite companies during the lowest moments of the market meltdown, you would be on very good terms with yourself. But stop, don’t get too carried away!

Be prepared
A left-field event could rock markets just like 9/11 or the Asian Currency Crisis did. Your approach to investing should be to have a diversified portfolio of great shares and other assets fed by regular savings. You should be able to stand a big market fall and if you can’t create that yourself, then find someone trustworthy to help you do it.
Points of confidence
So why am I more confident today?
  • Great early US company reports and outlooks from the likes of Goldman Sachs, Intel
  • Manufacturing reports in the US looked good
  • Today’s three per cent market surge where advances killed decliners on a ratio of 9:1
  • The S&P 500 again has crossed the 200-day moving average
  • The rally since 9 March
  • Good US mortgage applications news
  • The Fed has peeled back the US economic contraction from between 1.3 and two per cent to one to 1.5 per cent.
  • The Fed says the US economy grows in the second-half despite rising unemployment
  • Wall Street is buying the China story and their latest GDP number is out tonight.

There are more reasons why I feel it’s time to have a look at shares and even buy the dip in the markets, but these are a pretty good start if you are a doubting Thomas!











For advice you can trust contact Switzer Financial Services.








Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

 

 


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