Catching a falling knife

When buying the dip doesn’t work this time.

Often when the stock market sells off aggressively in a day or two, it’s because traders have overreacted. Stocks typically re-adjust soon after with a bounce. This pattern had been the norm for decades. But 2022 is special. Maybe this time really is different.

Here’s how the S&P 500 index performed the week after a 1% or greater daily decline, courtesy of the WSJ.

Between 1980 and 2021 investors were rewarded for “buying the dip.”
Whenever the market fell, it was very likely that stock prices would be higher the following week.

But notice the far right red bar representing this year.

Instead of a rebound after a 1% or more decline, investors who stepped in to buy the dip saw a decrease in value of their new investments.

The average weekly drop has been 1.2% so far in 2022. The only time the decline had been worse was during the great depression in the 1930s.


My new buys

I have certainly bought stocks this year on dips, only to see their prices continue to tumble. πŸ˜…

Just last week I bought 100 shares of GOOGL for $104 and 300 shares of SHOP for $29.
Yes, I got back into Shopify after selling for a loss earlier this year.

It’s very possible my decision to invest a lump sum will look like a mistake in the coming weeks or months.

But my investment time horizon is measured in decades. As I have often said in my videos, I believe long term investors have to be a buyer in the markets right now.

Maybe stocks will continue to go lower and buying the dip doesn’t work this year.

But a few years from now most investors will be happy they used dollar cost averaging to ease into the markets in 2022.Β  πŸ™‚


Random Useless Fact:


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09/26/2022 3:02 pm

it’s very ironic to see that whenever we enter a store, we almost always immediately look for a deal or discount or even haggle the poor salesperson, but when it comes to investing on the market we consistently buy high sell low… of course we cannot time the market or the “actual” dip but this is exactly why we get all salty when we don’t see growth in our portfolio cuz we decided to buy in when it’s high lol however, it’s human psychology and I get it that we are scared

personally, I don’t think the Feds or BoC have any tricks up their sleeve to stop the bleeding as the global outlook is fairly grim but honestly this recession we’re in is where millionaires are made and where people come on top just like ’08 and I ain’t missing the train this time haha


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Paul N
Paul N
09/27/2022 6:46 am

I set all of my dividends to auto reinvest a few months ago when this all started. I also used the March 2020 crash to slowly weed out my securities that cut or suspended dividends and did not fully reinstate them when they quickly recovered. (Or didn’t recover)
I look at the quick crash back then as a bit of a gift to make make my remaining holdings a stronger lineup today for what’s yet to come.

I still believe we never really dealt with 2008 properly, and that was the nasty river rapids that we survived on our way to the steep falls ahead of us. There are just too many bad economic metrics all converging simultaneously currently. Also it seems that unqualified, inept people in charge of dealing with it have been give “economic minister” positions all around the globe. Most have no economic background. Just look at their wiki’s.