Buy high sell low never builds wealth because selling low melts wealth every time when markets dip or correct to test investors. Superior investors pass this test showing superior results.
Managing Investment Markets Risks, Lesson 12, teaches the need to be prepared for market dips and corrections. Links at the end guide you to related content if you want to learn more.
What’s in this lesson for me?
When you are ready for stock market dips and corrections you end up with more money in you picket. Understanding stock markets helps you be ready for opportunities presented by dips and corrections. For superior investors, that turns negative markets into positive opportunities.
Making the choice to win, grow or lose
The buy high sell low trap never builds wealth but tests your portfolio management skill. It is a mental test that can be a challenge the first time to face it. Although easy to say, passing the test in a sharp correction can be hard. Rather than reacting in the heat of the moment be prepared by knowing this test is ahead.
Knowing that sharp investors buy dips teaches three money making steps to take during stock market corrections. Those steps give you a way to turn stock market downturns into money making opportunities.
When the market has down days or trends down investors can be quick to worry. Is it a small dip or something more serious? When stock market prices fall across the board, investors have three choices:
-
Stay to win:
Continue collecting dividends -
Buy to grow:
Stocks at “sale prices” grow portfolios -
Sell to lose:
Stops pain, loses capital locking in losses
Buy high, sell low certainly does not sound like a wise investing strategy. However, the market will test your investing beliefs. When facing your own investor pop quiz, what will you do? Be ready and you will do fine.
Pass the price dip test to build wealth
When prices fall, the wealth builder choices are, stay in or grow. Staying in to collect dividends while waiting for prices to rise again will work. A more aggressive wealth builder can buy more shares at the sale prices. Doing that can add significant upside gains when markets recover.
The alternate 3rd choice sell price dips to lock in losses. That is often a panic response. It does stop the pain of further loss but at the high price of locking in the losses. This approach destroys portfolios and wealth.
Look at the big picture to know your choice
To decide what to do, look at the evidence, not emotions and consider the bigger picture. Employment trends as well as house sales and prices are going up. Additionally, auto sales are also moving in a steady and growing trend upwards. In a previous blog we discussed 5 Stock market direction pointers. Key economic indicators keep telling us the financial future looks good.
For several days, market turmoil, falling stock prices and dropping indexes tell a different story. Be mindful that there are always falling prices somewhere for something. Broadly speaking, stock and market prices have trended up. Or do current market conditions say something has changed? Could this be the start of a more serious downturn?
Sources of market turmoil
When the market has been down for several days or weeks, investors get unsettled. That often comes as reactions to change or fear of change. For years tapering and talk of FED activity will make markets jumpy.
Dates also contribute to market nerves. Markets frequently react to ends of quarters or years. The lesson, Tapering groupthink can cost you! discussed being careful about responding to tapering talk. A related lesson, Ride tapering groupthink higher discusses buying the dips.
Traders and market reactions to speculative talk of imminent QE tapering by the Fed shows continued jumpy behavior. Behaving as a group, these traders’ actions create some choppy market movement.
A cynic might even enjoy the irony of seeing traders frustrated with choppy markets that they essentially create for themselves! While they are largely the authors of their own short-term discomfort.
Why this lesson matters
Knowing that stock market dips and corrections presents you with opportunities can sharply improve your investing results. Understanding how dips and corrections can be played improves your investing results and understanding of stock markets.
Key points to takeaway from lesson 11, Investing strategy option danger, includes:
Buy high sell low never builds wealth because selling low melts wealth every time when markets dip or correct to test investors. Superior investors pass this test showing superior results.
- Being ready for a stock market dip puts money into your pocket.
- Dips and corrections test investor’s portfolio management skills.
- Superior investors turn negative markets into opportunities.
- Investor portfolio management actions win, grow or lose money.
- Quality dividend payers continue paying through corrections.
- Stock markets are on sale during dips and corrections.
- Selling when down locks in capital loses.
- Pass the price dip test to grow wealth.
- Understand the sources of stock market turmoil.
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Use White Top Investor lessons to learn investing. By doing that you can grow into a knowledgeable, comfortable and confident investor. To learn how, you can learn investing one small step at a time at your own pace. Do that and become the master of your financial security and independence. White top Investor never sells or shares our email list. Learn more.
Managing Investment Market Risks, lesson links:
Introduction to Managing Investing Market Risks Lesson 1
Dangerous dividend warning signs Lesson 2
Investor retirement saving dangers Lesson 3
Exotic ETFs blow-up portfolios Lesson 4
Stock scam awareness defense Lesson 5
4 Stock scam tips Lesson 6
Bitcoin fraud trust and psychology Lesson 7
Investors hold patient cash Lesson 8
3 Risk or opportunity signals Lesson 9
Option risks, dangers and opportunities Lesson 10
Cautious look at options Lesson 11
Selling low melts wealth Lesson 12
Next suggested course:
Short story shorting stocks
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Bryan
White Top Investor
[email protected] WhiteTopInvestor.com
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