Stock market strategy: Do you want to do yourself a big favor? Don’t buy the dip…yet!

So far in 2022, almost everyone on Dalal Street seems to have it wrong! Like a chart of world central banks. In a matter of just six months, one of the most powerful bull runs in history appears to be one knockout blow away from falling into bear territory.

But there is a phrase that we never get tired of: buy the dip.

This is a strategy that sounds like a broken record every time the market falls. Even the billionaire investor Warren Buffet influenced many when he said, “Be afraid when others are greedy and be greedy only when others are afraid,” but 2022 has seen enough declines to turn investors’ dream strategy into a nightmare.

“This is going to be the worst bear market of my life,” market veteran Jim Rogers recently said.

Since the beginning of the year, market gurus have resonated with what buffett he said and suggested that investors be resilient while others remained fearful. While that has worked wonders for many over the years, does that mean it should be the access strategy this time too? Because stock prices can always fall further.

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With central banks determined to stifle inflation, tightening threats and the looming risk of recession, equities have wiped trillions out of the market. Investors have already lost more than Rs 31 lakh crore in the last six months.

For many, it seems impossible to break through the markets, unlike in recent years. Although many analysts at D-Street believe that every dip is an opportunity to buy, many investors are beginning to wonder if they should continue to buy every dip in the market when they don’t know where the bottom is.

Strategists at Morgan Stanley say it’s too early to turn bullish. They expect repeated bear market rallies in the coming months, with valuations close to historical norms, but one should not take this as a buy signal.

“Stocks will trade in a wide, volatile, downward biased range over the next year,” they added in a note. US stocks are down 22% so far in 2022.

Echoing the same tune, index bottom black rock said he refrained from buying the ‘sell’ in the markets because “valuations haven’t really improved, there is a risk of fed overfitting, and margins defy corporate profits.

However, Dalal Street has remained resilient compared to its global peers, but most analysts believe that the markets have yet to bottom. They are anticipating another 5 to 10 percent correction with Nifty50 around or below the 14,000 mark. Since hitting an all-time high of 18,604.45 in 2021, the Nifty50 has tumbled around 18% to near 15,200 levels, near its 52-week low.

“If it was a typical correction, then one would have seen the markets start to turn, but there are not as visible signals and even the reasons why we are seeing this recent correction or bear market, there is no visibility of a timeline.” as to when they will end,” said Dipan Mehta of Elixir Equities.

Mehta advised investors that this is not the time for cowboy antics, and investors should take defensive positions and create as much cash as and when they have the opportunity to do so.

It looks like a scenario where it’s too late to sell and maybe too early to buy. That said, analysts are hopeful that markets will bottom out sooner rather than later, creating attractive opportunities to rack up falling stocks at the right prices.

Skilled 14,500 is a good level where I think the risk-reward ratio will be better, said independent analyst Sandip Sabharwal, suggesting markets will bottom in the next 10-12 days.

“We’re going to have a slow and steady rise, stock picking and allocations are going to become much more important and the leaders of the past, where people just bought a certain set of stocks and thought it would do the work for them, that might not happen,” he added.

Even market veteran andrew holland advises investors to sit in cash for now. In an interview with ET Now, the CEO of Avendus Capital Public Markets Alternate Strategies said that staying on the sidelines is probably the best thing to do, a lot of people don’t think that sometimes as an asset class cash is king and it’s at this point it is.”

Although bear markets are scary, they don’t last forever. But as the author of
your money and your brainJason Zweig wrote, turbulent markets are a test for investors, not just their investments.

(Disclaimer: The recommendations, suggestions, points of view and opinions given by the experts are their own. These do not represent the views of the Economic Times)

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