Buy the dip. Don't time the market.
... what's a guy to do ...
This content is for informational purposes only, this isn’t legal, tax, or financial advice. This isn’t advice or an invitation to buy or sell any securities or investment product. Duh.
I’m the first person to give that sage advice of “Don’t time the market.” But, when the sale light flickers on, I even get an itchy trigger finger. Is it a hard and fast rule? Never buy or sell based on what you think is a good deal at the time. None of us are wizards who can divine the future, so do we just stick to that good ole’ dollar cost averaging? Just monthly purchases ad infinitum?
What’s the answer?
Yes.
Yes, we don’t time the dip. Yes, we buy the dip.
Does it sound like a conflict? Maybe on the surface, but underneath, not so much. These two ideas are perfectly compatible. I think it just takes a nuanced perspective and a principled investor, which is right up the alley of the average F.I.R.E.-minded friend.
Let’s unpack what I’m talking about a little more.
What’s behind “don’t time the market.”
It’s important that I’m speaking in the context of the F.I.R.E. community, who are typically far more financially savvy than you’re average latte drinking and Tahoe driving suburbanite with a second mortgage. What does it mean to not try to time the market?
"Not trying to time the stock market" means avoiding attempts to predict the best times to buy low and sell high. Instead, it’s about consistently investing over time, regardless of market fluctuations. This strategy is rooted in the idea that:
Markets are unpredictable in the short term.
Missing just a few of the best days can drastically reduce your returns.
Long-term, the market tends to trend upward.
So rather than trying to jump in and out based on gut feelings or headlines, you stick to a regular investing schedule — like dollar-cost averaging — and let compounding do the heavy lifting.
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves."
— Peter Lynch"The stock market is a device for transferring money from the impatient to the patient."
— Warren Buffett"It’s not about timing the market, it’s about time in the market."
— Unknown, but widely shared in investing circles
Sage advice this is. We F.I.R.E. folk know that long term success is built upon reliable and repeatable investing that happens over longer periods of time. Our greatest chance of wealth is consistency, not a one-time buy at the bottom of the dip.
The don’t time the market is for the average idiot who thinks they are smarter than the super computers running those millisecond trades.
Buy the dip.
It’s important that I’m speaking in the context of F.I.R.E. folk, they are smart. I think to even attempt to buy the dip, like right now, what we just talked about above needs to be true. You need to be be investing regularly rain or shine, that is the long term key to success.
But, we can all have a little fun now and then can’t we?
If you are investing on a steady basis, and you’re anything like me, I keep a healthy pile of cash sitting around that always gets bigger and bigger the more time goes by. You can’t have too big a pile, that’s not the best strategy.
So, whats better than to unload some of that cash on the dip? Nothing I think.
I mean if you’re just looking to deploy some extra cash every once in awhile, if the market is down and people are screaming about the end of the world … do what Warren Buffet does … pile that cash and than buy when things are sale.
I mean if the Oracle of Omaha is doing it, why can’t we? As long as we are disciplined determined long term investors, it’s ok to buy some “extra” stuff when things are on a fire sale.
We have a long term outlook and we are NOT jumping in and out of the market, that is when things fall apart. Simply seeing that market is way down, and knowing we will bin the market for the rest of our lives, is good enough reason to drop some coin when things are looking cheap.
So, I am going to buy the dip. Why not?