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Instead, from Bankrate, you may want to follow this advice during a dip:
3 investing strategies to consider if you want to buy the dip
If you’re thinking about buying the dip for the long term, you have a number of strategies that you could use to find attractive returns. Here are three of the most popular:
- Buy the best stocks in a beaten-down sector. If a whole sector has fallen because investors have turned sour on it, you may have an opportunity to buy the best one or two stocks in the sector. You’ll be able to find the most competitively advantaged players and then buy them before the sector returns to investors’ favor in a couple years.
- Buy a sector ETF. If you don’t want to do the legwork of investing in individual stocks, then you may be able to turn to a sector ETF and just buy a stake in all the companies in the sector. You’ll want to be careful that you’re actually buying the companies you intend, because some ETFs can be misnamed and hold many stocks you don’t want.
- Buy the market with an index fund. If you don’t want to do the work to invest in individual stocks or specific sectors, you still have the option to invest in the market with an index fund. A fund based on the Standard & Poor’s 500 Index can give you a stake in hundreds of America’s best stocks, and you can buy while it’s out of favor. It’s a great pick for investors who don’t have the time or energy required for more intense investing, and it’s also Warren Buffett’s recommendation for most investors.
Buying while the market is falling is difficult for many investors, however, because it hurts to lose money and the negative sentiment may be worrying, at least in the short term. That’s why Buffett has said, “The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
If you’re buying the dip for the long term, you’ll need to have the fortitude to stick with your investments while they fall and hold them through the eventual upturn (hopefully).
I'm not saying it's stupid to buy during a high. Some people buy during a high when they do cost averaging i.e. invest the same amount for a certain period of time. It's like I would release PHP 1,000.00 to PHP 2,000 a month if the market is high then buy in bulk during bear markets. Right now, if the bear market is over, I would need to limit the purchase to limit the losses. Buying during a high means buying appreciated stocks that may go higher. Cost averaging would mean combining buy high-sell higher and buy low-sell high depending on the NAVPU. The same can apply when buying index funds. Granted, I prefer index funds (for now) so I would buy low during a high and buy high during a low.
Good-performing companies with undervalued stocks provide good opportunities. I decided to get more money into the Philippine Equity Smart Index Fund because of the lower values. Now, I'll have to think about my next move if I should buy more for it before the market recovers. Yet, I feel I still need to keep some cash on hand in the savings for emergency reasons. Sure, I had my health insurance but there are still other emergencies to deal with. That's why I feel cost averaging may be the best move to avoid "timing the market". The only "timing the market" is when it's a bear market or a crash. Other than that, setting aside the same sum for a fixed time interval can be a better option.
The best thing to do with a crash isn't to sell but to buy more. I wonder if these people bought too much when the stock market rose up. If so, maybe that's why they sold during the crash. That's why I feel like stock investment needs to have more managed risk. The crash is an opportunity to buy. A rise is an opportunity to sell if you really need the money. Instead, people who rely too much on emotions ignore stock knowledge. I've been there and done that. This is one mistake I want to avoid.
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