Buy The Dip: Building Wealth Through Consistent Strategy, Not Perfect Timing

Too low to sell, too cash poor to buy the dip.  So laments an X user over this past week as he describes his current state of financial affairs.  No one wants to be a sucker yet prudent investing requires that you subject yourself to the fickle whims of the market - all in.

It’s hard not to feel like a sucker when you buy something only to watch it go on sale the next day.  Unlike Costco, financial markets will not retroactively match pricing (for retail investors).  This leads to a tendency to hold unproductive cash, waiting for an elusive signal for the lowest low. 

Only then can we brag to our spouse that we’re better than everyone else.  Catching the bottom seems like it's a critical component of investment success.  Pulling it off with style can even garner celebrity status and a possible Netflix deal.  

Having personally worked with hundreds of households over my two decade career, many of which have built substantial wealth, not a single success story can pinpoint buying a dip as its primary contributor.  In fact, reserving idle cash for timed purchases hurts long-term results.  

Most years are positive in the stock market.  Most trading days result in positive returns.  It stands to reason that a diversified equity portfolio, if left alone, will produce positive results.  Cash, on the other hand, will only produce a return equivalent to the prevailing 3-month T-Bill less a spread or a fee. This is usually close to the CPI stated rate of inflation.  

The delta between cash vs investment returns grows exponentially over time.  Failure to catch a bottom results in underperformance, and that is usually the outcome.  But at least this underperformance feels good in times like these.  

In fact, it feels so good that we often don’t pull the trigger when we should.  Exactly zero normal people like getting out of a warm bed on a cold winter day.  Yet, this is what success mandates.  The markets feel ice cold right now because this is the media sentiment.  

I read and watch the same drivel you do, this article excluded or course.  Most of it is pregnant with depressionary nostalgia.  “Levels not seen since 1928!” Like my children, surprised when bedtime happens every night, investors act as if they are reading hyperbole as fact for the first time ever.  

This is your signal.  This is when you buy and you will NOT catch the bottom.  That requires clairvoyance, luck or enough capital to synthesize market movements.  Apply within if you have any of the above.  

Progress on the path to wealth is made through consistent adherence to strategy.  Like putting one leg in front and then the next, it is patient and without overthinking.  So too should be your investing strategy.  

There are situations in which you might find yourself with lump sums of cash when markets are down.  This is a good position to be in!  Join us as we discuss what to do in these situations, as well as for some timely market prognosis! 

 

Reference Links: J.P. Morgan Guide to the Markets - PE Ratios & Equity Returns

T.Rowe Price - The Cost of Cashing Out

Vanguard - Staying the Course

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