Are We Buying Into the Dip?
Dear Clients and Friends, Between visiting clients and paying minute-to-minute attention to the market this past week, all of us at MORWM have been double-time. Thus, this will be brief. To reiterate our former message, we had previously predicted an imminent correction and, although more rapid than we had anticipated, our numbers seem to be pretty accurate so far - we predicted a correction of between 10-13% on January 17th (which, by the way, was my birthday. Imagine the buzzkill this perdition brought to bear). As of the close on Thursday, the correction in the Dow was just over 10%. Thus, for selected clients, we started buying into the dip on Friday and will likely continue to do so, depending on how long the dip lasts. Because this could get worse before it gets better, there are two quick things I’d like to mention:
a) If an index falls from 100 to 90 and we buy in, and then the index falls from 90 to 80 and we buy in again, our average “buy-in” price is 85. Therefore, if the index were to return only to the initial buy-in price of 90, then the combination of both trades, on average, is profitable. This is called “dollar cost averaging” and it’s the reason why we buy into dips in stages. It’s also the reason why the recovery of a dip need not be very substantial in order to be profitable.
b) Is this the recession that we have been discussing? No. The economy remains strong, although it is slowing in momentum. We do not think that the recession will occur before November 2018, and possibly not until mid- 2019. If the market falls below what we call the “200 moving average,” or 22,700 on the Dow, then I’ll start to worry. We are currently at 24,190.
I can’t bring myself to repeat the entirety of a quote that I’ve used a zillion times in the last year, so I’ll ask that you finish my thought for me: what does Warren Buffett tell us to do when everyone else is fearful? Have a lovely Sunday.
Matthew Ramer, AIF® Principal, Financial Advisor MOR Wealth Management, LLC
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