Das argues that many expressions used by financial advisers are an attempt to defend bad advice. Cheekily, he puts ''buying the dip'', ''averaging in'' and ''buy and hold'' into this category.
"If you believe that shares only go one way, which is up, then every time they go down, it's a buying opportunity,'' he says. ''If a stock was good value at $10 then it must be cheap at $9 and a bargain at $8. People forget that the lowest it can go is zero."
Averaging-in, or dollar-cost-averaging, is a strategy designed to avoid trying to time the market and investing all your money at the wrong time.
The idea is that by investing small amounts regularly you buy more when prices are low and less when prices are high. Left to their own devices, most people do the opposite.
This works well in a rising market but when prices are falling you simply throw good money after bad and keep fund managers in business.
"The only way out of a hole is to stop digging," Das says.
The buy-and-hold strategy is based on the premise that if you hold a stock long enough it will make money.
This may be true for good quality stocks some of the time but it is not an excuse to nod off at the wheel. Some stocks are lemons and there are times when it pays to reduce your overall exposure to shares and invest in something that provides a better return.
"People forget that after the 1929 crash it took 25 years to recover,'' Das says. ''The Japanese market has never regained its high of 1989."
No comments:
Post a Comment