Investor reaps £21,000 profit from purchasing dips in tariff market: Here's the strategy I employed
In the world of investing, the phrase "buying the dip" has gained significant attention, especially during periods of market volatility. This strategy involves purchasing assets when their prices have dropped, with the hope of reaping profits as the market recovers.
Lale Akoner, a global market strategist at Etoro, warns that while a low price might seem like a bargain, it's essential to assess an asset's intrinsic value before making an investment. Akoner emphasizes the importance of finding assets with a margin of safety, where the stock trades below its true worth due to transitory setbacks.
Etoro's research reveals some interesting trends among investors. For instance, a fifth of investors would buy the dip when the market is down between 5 and 10%, a quarter would wait until the market falls between 11 and 20%, and just over 10% would buy only when the market falls more than 20%.
Younger generations, particularly Gen Z and Millennials, are more attuned to market fluctuations, according to Etoro's data. These groups are more likely to discuss markets and invest, with volatile periods potentially bringing more of them into the market.
One such investor is Megan, a 31-year-old personal trainer from Bedfordshire. Since April, she made an investment during a market decline following Donald Trump's tariff announcements this spring. After experiencing a £9,000 loss due to tariff announcements, Megan sold her positions and reinvested in select stocks, including JP Morgan, Lockheed Martin, and American Superconductor. Since then, her portfolio has risen steadily in value and is now up by £21,000.
Investors consider several key factors when deciding to "buy the dip." These include market conditions and volatility, valuation and opportunity, long-term horizon and patience, liquidity and cash reserves, risk tolerance and experience, investment strategy, and the broader economic and policy context.
However, Akoner stresses the importance of distinguishing between temporary volatility and a genuine deterioration in a company's outlook. Investors must weigh the opportunity against areas of support and resistance before investing, waiting for slight indications of a reversal or enough time to realize that people have psychologically chilled out before investing.
Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management, notes that not all dips are created equal and some recoveries take time - sometimes decades. The danger for investors is that a falling stock or market could continue to decline or recovery may take longer than anticipated.
A disciplined approach to investing, such as regular saving, can help build wealth steadily over time. Laith Khalaf, head of investment analysis at AJ Bell, suggests a strategy of monthly contributions to a pension or Isa as a way to accumulate wealth in a more steady manner.
This article also mentions several DIY investing platforms, including AJ Bell, Hargreaves Lansdown, interactive investor, InvestEngine, and Trading 212. Etoro's research suggests that volatile periods might be bringing more investors, especially among younger generations, into the market.
In summary, investors who "buy the dip" weigh the underlying reasons for the decline, their financial capacity and risk tolerance, confidence in a sector's fundamentals, and their investment horizon, often acting with a disciplined strategy aimed at long-term gains instead of reacting to short-term noise.
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