What is buying the dip?
In the stock market, share prices regularly fluctuate. This doesn’t affect the amount of shares you own but instead the value of the shares. Usually when these fluctuations happen, depending on the reason, share prices may drastically drop, resulting to an opportunity to “buy the dip”.
Why Buy the Dip?
Buying the dip allows investors to lower their average purchase price for a stock, enhancing potential long-term gains. Here’s how it works:
For example:
The more shares you purchase relative to your initial holding, the closer your average purchase price moves to the lower price.
Is a Dip in Share Price Always a Bad Thing?
Not necessarily. While a dip can sometimes signal poor performance by a company, there are other reasons share prices may drop. Understanding these reasons is crucial to determining whether the dip presents a good buying opportunity.