July 22, 2013

Why buy on dips is a bad idea

We have all heard this "buy on dips" argument... after all if a stock has fallen down so much, how much can it fall?

A look at today's losers ...

WOCKPHARMA down from 2000 to 800 in 3 months


FINANTECH from 1200 to 800 and then to 600


GITANJALI from 600 to 55... I got a huge number of "can I buy this stock?" calls




6 comments:

  1. No wonder it is said - " never catch a falling knife "

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    Replies
    1. Corollary ... average when in profit; for long positions, average up never down.

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  2. Extremely true. See what happened to stocks like Glodyne Trechnoserve,Educomp, Everonn,Core Educational Technology, Opto Circuit, XL Energy.

    ReplyDelete
    Replies
    1. Correct.. but whenever a rally happens in NIFTY, these stocks are highly unlikely to recover their past levels... it will take a long long time. People mistakenly believe that if a stock has corrected by 60-70%, it will recover same amount whenever market conditions improve.

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  3. sir then what about stocks like TATA STEEL AND SAIL

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    Replies
    1. This year SAIL is declining right from 103 levels and stock has lost more than 50%. Before that the decline on weekly charts is from 240 levels and there is still no buy signal. So why trade stocks like these? Some time or the other a buy signal will emerge.. then we can think about this.

      This story is similar for stocks making new lows this year.

      Delete

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