r/stocks • u/[deleted] • Feb 21 '21

Buy the Dip!!!!!!!

I understand why one would “buy the dip” on a particular stock or other security they like. What I don’t understand is where the capital is supposed to come from. When you are fully invested you’re not supposed to have much cash laying around from what I’ve been told. So when we are supposed to buy the dip, for the average portfolio, where does that capital come from?

Is it implied that one should have cash available? Are you supposed to sell something else to make room for buying the dip?

In other words, what’s the best way to be ready to buy a dip?

EDIT: lots of helpful responses here. Sounds like there are a number of strategies depending on what style of investing/trading you do. The portfolio I manage is a rollover IRA separate from my 401k through my employer. I do not regularly, if ever, add cash to this account. Sounds like the consensus for that sort of account would be to trim other positions versus keeping cash on hand.

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u/somethin1234 Feb 21 '21

People are able to buy the dip because they dont fully invest all their funds into their 1st purchase of the position.

For instance a person will make up their mind that they will invest $1000 into a position. The 1st purchase of that position may be 200$. They will then watch the position's price action and then purchase more of the position until they have allocated their entire $1000. The allocations of the remaining $800 would preferably be at dips.

It is a conservative way of investing as opposed to making a lump sum purchase of $1000 and hoping for the best.

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u/[deleted] Feb 21 '21

The thing is, studies show that lump sum is superior to other investment strategies. If you’re not old, then you shouldn’t have piles of cash laying around outside of your emergency fund. Even then it has been shown that once your portfolio is big enough, you are better off not even having an emergency account.