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But while the general principle behind buying the dip is solid, its not a guaranteed money-maker.
In fact, in some cases, buying the dip is the absolute wrong investment strategy.
Heres a look at ways to maximize profit and avoid making mistakes when buying the dip on cheap stocks.
you’ve got the option to also read more about sleeper stocks that could pay big next year.
What Does Buying the Dip Mean?
Buying the dip simply means buying more of an investment if its price has fallen.
How Can Buying the Dip Pay Off?
If a stock recovers from a selloff, buying the dip essentially leverages an investors exposure.
By adding more money at lower prices, investors lower their average cost, and consequently their breakeven point.
This makes it easier to turn losses into gains if a stock makes a comeback.
When Is Buying the Dip a Mistake?
Not every stockthat falls goes on to recover.
When buying the dip, investors therefore need to be careful about chasing losses.
If a stock never recovers, like Blockbuster, averaging down just throws good money after bad.
But the case is not nearly as clear-cut with individual stocks.
Whats the Best Process To Avoid Making Mistakes When Buying the Dip?
This distinction can mean the difference betweengains and lossesfor investors buying the dip.
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