Don't Buy The Dip! Unless... 🤔 💭
This Could Be a Trap! ❌
About two weeks ago, the market had it’s largest single day sell off in about 2 years.
Some panicked and sold. This is never the right move.
Some saw this as an opportunity to buy the dip.
This was the right move… Potentially…
There’s a huge difference in high quality stocks vs low quality stocks during a bear market, or even just a market sell off.
Yes, the share price for both of them fall during a bear market.
But for high quality companies, the underlying fundamentals don’t deteriorate during a bear market.
For a low quality company, fundamentals often do deteriorate during a bear market.
So what does a bear market do for us?
It creates opportunity to buy high quality companies at better valuations.
But it also creates “the illusion of opportunity” to buy lower quality companies.
Some low quality companies never fully recover from bear markets.
Meanwhile, buying high quality companies during bear markets can often lead to amazing results.
How can we know the difference in high quality vs low quality companies during bear markets?
During bear markets, the share price of high quality stocks may drop-
But high quality companies typically continue to grow free cash flow, they maintain they gross profit ratios, and their return on invested capital doesn’t drop.
The opposite is true of low quality stocks.
Their share price drops, but so do the fundamentals.
And they also see their balance sheet deteriorate as well.
So when the next market drop happens, and you begin looking at stocks that are down, ask yourself this-
“Is this an opportunity? Or is it an illusion of opportunity?”
Taking just a moment to ask yourself this, can save you a lot of money… And also make you a lot!
Check out these resources:
Tickerdata 🚀 (My automated spreadsheets and instant stock data for Google Sheets!)
Interactive Brokers 💰 (My favorite place to buy and sell stocks all around the world!)
Seeking Alpha 🔥 (My favorite investment research platform!)
At the start of every month, I send out a newsletter to my paid newsletter subscribers with a list/spreadsheet of all the dividend stocks that I believe to be currently undervalued.
This sheet was received by over 300 dividend investors last month. (Wow!)
If you’d like to receive this sheet, you can sign up here:
That’s all for now!
See you next week!
Dividendology 🚀