stock market strategy: Want to do yourself a huge favor? Don’t buy the dip… just yet!

So far in 2022, just about everyone on Dalal Street seems to have got it wrong! As did a cadre of global central banks. In a matter of just six months, one of the most powerful bull runs in history looks to be a knockout punch away from falling into bear territory.

But there is a phrase we can not get enough of – buy the dip.

This is one strategy that plays like a broken record every time the market falls. Even billionaire investor Warren Buffett influenced many when he said, “Be fearful when others are greedy and be greedy only when others are fearful,” but 2022 has seen enough dips to turn investors’ dream strategy into a nightmare.

“This is going to be the worst bear market in my lifetime,” market veteran Jim Rogers recently said.

Since the beginning of the year, market gurus have resonated with what Buffett said and suggested investors be resilient while others remained fearful. While that has worked like a charm for many over the years, does it mean it should be the go-to strategy this time too? Because share prices can always fall further.

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With central banks’ determination to stifle inflation, threats of tightening and impending recession risk, stocks have knocked trillions off the market. Investors have already lost over Rs 31 lakh crore in the last six months.

To many, it seems impossible to get through markets, unlike in the past few years. Though many analysts on D-Street believe every dip is an opportunity to buy, many investors are beginning to wonder if they should keep buying at every dip in the market when they do not know where the bottom is.

Morgan Stanley’s strategists say it’s too early to turn bullish. They expect repeated bear market rallies over the next few months, with valuations nearing historical norms, but one should not consider it a buy signal.

“Stocks will trade in a wide, downwardly biased and volatile range for the next year,” they added in a note. US stocks have fallen 22 percent so far in 2022.

Echoing the same tune, index fund BlackRock said it’s refraining from buying the ‘sale’ in the markets as “valuations haven’t really improved, there’s a risk of Fed overtightening, and margins challenge corporate earnings.”

Dalal Street, however, has remained resilient compared to global peers, but most analysts believe that the markets have not bottomed out yet. They are anticipating another 5-10 per cent correction with Nifty50 around or below the 14,000 mark. Since hitting an all-time high of 18,604.45 in 2021, the Nifty50 has plunged around 18 per cent, near 15,200 levels, near its 52-week low.

“If it was a typical correction, then one would have seen the markets starting to turn around, but there are no such visible signs and even the reasons for which we are seeing this recent correction or bear market, there is no visibility of a timeline as to when they will end, “said Dipan Mehta of Elixir Equities.

Mehta advised investors that it’s not the time for cowboy antics, and investors should take defensive positions and create as much cash as and when they have an opportunity to do so.

It seems like a scenario where it’s too late to sell and maybe too early to buy. With that being said, analysts are hopeful that markets will bottom out sooner than later, creating attractive opportunities to accumulate stocks on dips at the correct prices.

Nifty at 14,500 is a good level at which I think the risk-reward will be better, said independent analyst Sandip Sabharwal suggesting that markets will hit their lowest in the next 10-12 days.

“We are going to have slow, steady rise, stock picking and allocations will become much more important and the leaders of the past where people just bought a certain set of stocks and thought they would do the job for them that might not happen, “he added.

Even market veteran Andrew Holland advises investors to sit on cash for now. In an interview with ET Now, the CEO of Avendus Capital Public Markets Alternate Strategies said sitting on the sidelines is probably the best thing to do, a lot of people do not think that sometimes as an asset class, cash is king and it is at this point it is. ”

Though bear markets are scary, they do not last forever. But as the author of
Your Money and Your BrainJason Zweig, wrote, turbulent markets are a test for investors, not just their investments.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

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