How to buy on dips

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Question: It seems to me that instead of building a portfolio and staying long, you have to be buying and selling all the time – otherwise there is ultimately no cash to buy these dips you keep referring to.

If you keep buying dips, eventually there is nothing left unless you are selling things from time to time to create cash. What is your response to this, remembering I am trying to build a portfolio and stay long? It seems to me your theory requires one to be a trader or have a money tree at the bottom of the garden.

Answer (By Peter Switzer): I am certainly not trying to suggest that you have to be a trader, or for that matter, have a money tree. That said, I can see where you are coming from.

When I talk about buying the dips, the funds could come in the following situations:

  • Most SMSFs in accumulation phase have continual income to invest – new contributions, interest and dividends from existing investments etc;
  • Australian shares make up (for most funds) just a part of their super fund – so the money could come from another asset class if you are underweight Australian shares;
  • Or if you are not fully invested, then this would be a good time to move money out of cash into shares.

Obviously, if you are already fully invested and have no cash, you can’t buy the dips. However, if the situations above apply, then what I am saying is that this is a good opportunity to buy Australian shares.

Question 2: I have been very happy with the stellar performance of Vita Group (VTG) over the last 18 months. However, since paying a handsome dividend, it has taken a dive. I have scrutinised the results balance sheet etc., and cannot see any problems.

It is clearly beyond me and I seek your expert advice.

Answer 2 (By Paul Rickard): The fall in price for Vita Group (VTG) coincided with the release of its profit result on 24 August. While this was very strong, the company cast doubts about its ability to pay any further special dividends (ATO has withdrawn the class ruling for dividends paid after 30 June).

I can’t see anything else – so I sense this fall is just profit taking (after a huge run up in price).

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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