Retail investors bought the dip yet again


Yahoo Finance 23 July, 2021 - 01:58pm 29 views

During that brief time, scores of retail investors trained by the mantra “buy the dip” did just that.

So what happened? DataTrek’s Nicholas Colas hypothesized that the retail investor behavior we’ve seen play out over the past 18 months likely recurred.

Searches for “Dow Jones” spiked during Monday’s market dip, Colas pointed out, and a note from Goldman Sachs indicated institutional investors weren’t really buying the rebound. With the public paying attention to the market and big players standing back, it’s a fair bet regular retail investors were the ones who rushed to their brokerage sites.

“The same thing happened in January, and the Google data looked about the same,” Colas told Yahoo Finance. “It’s an imperfect analysis, but it does seem to tie together.”

At the beginning of the pandemic in the U.S. stock indexes plummeted, losing over 30% in March 2020.

But while institutional and big money investors ran for the hills, retail investors — in it for the long term — saw an opportunity to gobble up stocks at lower prices. Vanguard, Fidelity, and other brokerages reported this behavior.

However, there are only so many times you can deploy reserves; you have to have cash on the sidelines to buy. The federal stimulus payments and increased household savings amid business shutdowns meant some investors had extra cash to put in the market. But these pandemic-era conditions are temporary.

Colas reckons that it’s not over.

Colas, a hedge fund veteran, calculates there’s around $400 billion in cash still on the sidelines, ready to “buy the dip” when the market pulls back.

Buying the dip is based on one of the foundational directives of long-term investing, and typically favored by financial advisors and famous investors like Warren Buffett. You’re investing for the future, so it’s okay if stocks will be down for a while, because you’re going to sell when the present is a distant memory.

Buying the dip because you happen to have money when the market swoons may be good, but actually waiting to buy the dip isn’t necessarily beneficial — it’s falling into the trap of trying to time the market. In many instances in the recent past (the Global Financial Crisis of 2008-09 and even the short-lived 2020 bear market) some people stayed on the sidelines and missed big gains because they were waiting for the S&P 500 to sink back down – which it never did.

Timing the market is a fool’s game. Even when you happen to get it right with one great bit of dip buying, you’re going to do better if you just invest a chunk of money in the market at regular intervals.

In 2019, Ritholtz Wealth Management COO Nick Maggiulli calculated that investing $100 each month for any 40-year period between 1920 and 1979 would have produced better returns than saving $100 each month and buying every dip during that same period. Maggiuli ran the numbers with historical data and found that buying the dip underperforms regular buying ("dollar-cost averaging") more than 70% of the time.

And if you’re not omniscient — and you’re not, to be clear — you’re probably going to underperform even more.

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, YouTube, and reddit

Blizzard president J. Allen Brack called the allegations 'extremely troubling.'

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen urged lawmakers on Friday to increase or suspend the nation's debt limit as soon as possible and warned that if Congress does not act by Aug. 2 the Treasury Department would need to take "extraordinary measures" to prevent a U.S. default. In a letter to House of Representatives Speaker Nancy Pelosi, Yellen said that Oct. 1, the first day of the next fiscal year, could be a critical date for the U.S. ability to pay its obligations without debt limit legislation due to large federal outlays scheduled for then. In the letter, also sent to other congressional leaders from both parties, Yellen said U.S. debt would be at the statutory limit on Aug 1, when a two-year suspension is set to expire.

(Bloomberg) -- China is considering asking companies that offer tutoring on the school curriculum to go non-profit, according to people familiar with the matter, as part of a sweeping set of constraints that could decimate the country’s $100 billion education tech industry. Shares sank.In rules currently being mulled, the platforms will likely no longer be allowed to raise capital or go public, the people said, asking to not be identified because the information is not public. Listed firms will

(Bloomberg) -- They say the only people who got rich in the 1849 gold rush were the merchants who sold shovels to would-be prospectors. In the 2021 gold rush for meme stocks, it may end up being the pilots of planes that tow banners who make the real money.Airborne messages pumping shares of AMC Entertainment Holdings Inc. -- similar to the banner planes that alert parched Jersey Shore tourists to where they can find a $2 Corona Light -- have become a top tool of choice for the retail army that

NASA's InSight lander arrived on Mars in 2018 to learn about its interior by monitoring "marsquakes," and now the project is starting to really pay off.

The dispute adds a juicy new twist to the five-year-old scandal.

Cryptocurrencies were broadly higher on Friday morning as bitcoin headed for a weekly gain.

(Bloomberg) -- Another raft of blockbuster corporate profits pushed stocks to a record at the end of a week that started with concern about a peak in earnings and a coronavirus resurgence.About 87% of the S&P 500 companies reporting results so far this season have beaten Wall Street estimates, according to data compiled by Bloomberg. Twitter Inc. and Snap Inc. led a rally in social-media firms as sales blew past forecasts, while American Express Co. jumped after adding a record number of new cus

DETROIT (Reuters) -Electric car startup Rivian said on Friday it has closed a $2.5 billion fundraising round led by investors Inc , Ford Motor Co and T. Rowe Price. Reuters, citing unnamed sources, reported on Thursday that Rivian's planned plant, dubbed "Project Tera," will include battery cell production. “As we near the start of vehicle production, it’s vital that we keep looking forward and pushing through to Rivian’s next phase of growth,” Rivian Chief Executive R.J. Scaringe said in a statement.

The rapper's heart is as big as his fan base.

Google is expanding the Android Auto beta program, giving anyone with an Android device and a willingness to put up with bugs the opportunity to test the platform's latest features before they're available to the public.

The stock market closed higher as the main indexes extended their win streaks to four days. The Nasdaq and S&P 500 made all-time highs.

The S&P 500 and Nasdaq indexes hit record highs on Friday and were on track to end the week with gains, helped by megacap growth stocks and strong earnings from social media companies, while a weak forecast from Intel hit chipmakers. Twitter Inc gained 4.2% after it reported quarterly revenue growth, while Snapchat-owner Snap Inc surged 22.5% on beating estimates for user growth and revenue. Strong results from the social media firms set a positive precedent for Facebook Inc, which jumped 6.7%.

We've written at length in The Morning Brief about the role demand is playing in the economic recovery.

Buying on the dip is a great strategy, until it isn't. The problem is it can lead to outsized drawdowns if you aren't careful.

Hot EV startup Rivian, backed by Amazon and Ford, plans a second assembly plant ahead of an IPO. In addition to electric vehicles, Rivian Automotive's second factory in the U.S. will build battery cells, sources told Reuters. "While it's early in an evolving process, Rivian is exploring locations for a second U.S. manufacturing facility," Rivian spokeswoman Amy Mast told Reuters on Thursday, without providing further details.

What happened The Chinese government strikes the U.S. stock market again. Though today's news of a regulatory crackdown focuses on education companies in China, many U.S.-listed Chinese stocks are being hit this morning.

Read full article at Yahoo Finance

Business Stories