Buying the Dip

If you have done research on investing in the past then I am sure you have watched a ton of videos on reading the charts, knowing the trends, and following the news to understand what a stock is going to do. Although this stuff may be helpful it is never as safe of an investment as one may think. For example with trends, there is really a trend name for every possible direction a stock can go so you can never be sure what trend your stock is going to follow. It may be enticing to try and make quick money with stocks but you can also lose money quickly when trying to time the market perfectly. As for following the news if you use this tactic, you may find out that you should be buying on the rumor rather than the news. I have found myself buying stock many times in anticipation of an earnings report for example. The earnings report may come back great and exceed last quarter’s earnings by a lot and yet the stock can still go down. If you buy stocks a lot you will come to learn that like anything else stocks are simply worth what we as consumers believe them to be worth. If we decide a stock is good and everyone buys it, it will go up regardless of the profits of the company. If we decide a stock is bad and we sell it, even if the profits of the company are good then the stock will go down.

Because of these facts, over years of investing I have come to follow one simple rule with stocks. That rule is buying the dip on quality companies that will be around for the long run. When the stock market drops and everybody is scared of the market that is the best time to buy up stocks that you believe will be around long term. Think about the stocks that are household names like Coca-Cola, Apple, Microsoft, Walmart, Disney, Home Depot. These companies have great foundations and are a large part of our society. Even when the market tanks, these companies are most likely not in danger of going out of business anytime soon.

Let’s say the market was to tank tomorrow and Coca-Cola’s stock was to drop 20%. This would be a great time to buy a good amount of stock in Coke because we know it will probably be around 10 years from now and when the market goes back to where it was, we should be up at least 20% on our money. This is the same approach that successful investors like Warren Buffet follow. He did not make his billions overnight, instead he had patience and continued to buy up stock in companies he believed in every time he would find them at a discount. That is how he ended up with such large portions of ownership in big companies and today he is worth over $100 billion.