We all know that one cannot consistently time the market. But could “Buy on every dip” can be a strategy?
SIP (Systematic Investment Plan): The 3 most glorious letters in the market.
Investors who understand SIP are never scared of any kind of market because they know they will make money over long term.
Now lets look at how can you do few variations in SIP and and optimize your returns.
Here comes a new concept – ‘Opportunistic SIP’. Buy at every 4-8% dips.
1st Variation – Opportunistic SIP in a Bull market.
Many stocks go on bull runs for multiple years. But even then, over the course of a year, any typical stock falls 5% from its peak point several times. We need to buy all these dips.
This can also be called as ‘Pyramiding'(whereby as your portfolio is rising, you keep adding at every small dip of 5% there are plenty of 5% dips even in bull markets). but it is much more than that. ‘Opportunistic SIP’ in a Bull Market gives a sense of a system where by you are buying the ‘dips’ of a bull market instead of randomly buying.
Also, it is advisable to do this at a portfolio level, at pro rata basis so that you do not end up losing a fortune on 1 single stock.
2nd Variation – Opportunistic SIP in a Bear market.
We buy stocks whenever they fall 5% in a bear market and it can be brutal. But Opportunistic SIP in a Bear market makes the most money if you are a patient person.
In a negative market environment, Opportunistic SIP becomes a GREAT accumulation strategy.
*The most important lesson here is to do this ‘SIP’ at a ‘PORTFOLIO LEVEL’. Do not make the mistake of buying just 1-2 stocks as they dip.
If you buy the portfolio at every 5-7% dip, this strategy can work wonders. As soon as the market turns from a Bear to a Bull and your portfolio will start dancing.
This level of control can do proper risk management at the portfolio level.
“Stop catching falling knives and do not average the losers’.
I regularly apply this strategy at my portfolio and it works very well.
Stay safe everyone. Get Vaccinated soon.