According to Jason Zweig in the Wall St Journal when the market is tanking, the bulls like to remind investors to "buy on the dips." But this strategy doesn't work as well as logic might suggest. Sure, it makes intuitive sense. The whole point of investing, after all, is to buy low and sell high. When prices take a sudden drop, the market gives you an immediate opportunity to buy low. Why not take it?
That is what at least some investors were wondering this week after the Dow Jones Industrial Average dropped nearly 500 points on Thursday at its lowest point. The market then closed up on Friday, giving anyone who caught the bottom a quick gain.
But look and think a little more deeply, and buying on the dips starts to seem less appealing. Start with trying to define it. What is a "dip"? Is it a 2% decline in the value of a market index, or 5% or even more?Does a dip occur in a day, a week or longer? Because investors appear to go by gut instinct…
http://online.wsj.com/article/SB10001424053111904563904576589134168081092.html?mod=WSJ_hp_MIDDLENexttoWhatsNewsTop
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