Don’t buy the dip.

I know this is a tough time for everyone. But there’s something you need to see to put this in perspective.

This year the S&P 500 Index fell 31% in 22 trading days. That’s a record.

But it hasn’t fallen as far as any of the last three major crashes in 1987, 2000 or 2008. You can see what I mean from the chart below:

(Source: Bloomberg)

But we aren’t close to the historic bottoms of the other crashes:

  • In 1987 the S&P 500 fell 34% in 72 trading days.
  • In 2000 it fell 49% in 638 trading days.
  • In 2008 it fell 56% in 356 trading days.

I was a newsletter Editor in 2008, just as I am now.

I remember the anxiety of that bear market. We had all sorts of dire warnings.

The Economist had an iconic magazine cover in May 2008 of mobs storming banks. The magazine featured an 18-page exclusive on the future of banking.

Then, like now, it was the end of the world … until it wasn’t.

The current market crisis brings new and unique problems with it.

We’ve never had an outbreak send tens of millions of people into quarantine. Major cities streets around the world are desolate.

And on top of that, the oil market collapsed from a price war between Saudi Arabia and Russia. That will put millions out of work as oil projects shutter from low prices.

Short of a miracle vaccine, the pandemic will continue to shut down the global economy. Its progress is like a slow strangle. Like an invisible python wrapping its coils around our normal lives.

That’s why I encourage my readers to avoid buying the dips.

There were a series of bear market rallies in the 2008 crisis. However, for buy and hold investors, they weren’t the opportunities that they appeared to be.

If you bought the dip early in the decline, it took months just to get back to zero.

My advice right now is to do nothing. Don’t buy stocks … and don’t sell. We need to ride this out. Once the market settles down, we’ll get back to the business of building wealth.

We will get through this!

Good investing,

Matt Badiali

Editor, Real Wealth Strategist