As investors, it can be an emotional ride when our stocks drop big, and if you are a growth investor, you are probably experiencing it right now. A great combatant of emotions is having a plan, which allows investors to be emotionally numb in all types of markets and protect them from emotional investing.
That is why in today's video, I mention four methods for buying the dip and the risk and rewards that come with each! I share a closer look at each method in the video, but you can find a quick overview below:
1. Going all in
Risk: You bought too early, and the downturn can continue.
Reward: If somehow you bought at the bottom, you can brag about this moment for a lifetime.
Comments: This is probably my least favorite method due to the amount of emotional stress that this might bring if you are wrong.
2. Waiting for a reversal
Risk: The reversal might be a dead cat bounce, and the downtrend can continue.
Reward: If the reversal was correct, you missed out on all the red days, and you can brag about this moment for a lifetime.
Comments: My second least favorite method due to it being very similar to Method 1, this is pretty much trying to time the market
3. Having a rule of when to buy. For example, every time stocks drop X%, use Y% of buying power
Risk: There might not be enough red days to use all your buying power and lead you to miss out on gains.
Reward: You eliminate timing the market and have a plan that allows you to be emotionally prepared for different outcomes.
Comments: My favorite method to use when stocks take a dip!
4. Selling low conviction to buy higher conviction stocks that have dropped big
Risk: The stocks you sell might perform better than the ones you buy.
Reward: Since the higher conviction stocks have dropped big, the rewards can be amazing
Comments: I tend to use this method with a mixture of Method 3.
As you can see, each method comes with its own risk and reward. I do not believe there is a correct answer, but I think it is essential to have a plan!