TOP STORY
😰 The S&P 500 Just Crashed 10% - Should You Buy the Dip?

😰 Well… that was a rough week. After Trump announced a ton of surprise tariffs on ‘Liberation Day,’ the markets got absolutely crushed. Since Thursday morning:

• The S&P 500 fell 10.5%

• The Nasdaq-100 fell 11.2%

• The TSX fell 8.4%

…marking the worst days in 5 years since the COVID crash in 2020 📉

The Mag-7 big tech stocks got hit even harder, collectively losing $1.55 trillion in market cap, their largest weekly market-cap decline on record.

Now, since you’re reading an investing newsletter on a Sunday evening, I’m going to assume you’ve already read a ton about the tariffs and what caused the crash, so instead of just re-hashing that I’m going to focus today on the big question that’s probably on everyone’s minds - should you buy the dip?

🤔 Should You Buy The Dip?

🚨 As soon as the market starts falling, the calls start coming - BUY THE DIP!!!

In case you’re unfamiliar, buying the dip basically refers to purchasing a stock or ETF when its price has fallen, presumably at a discount.

🤔 For some investors, Thursday and Friday felt like a Black Friday sale - a chance to pick up all your favourite stocks at a nice fat discount. But is that actually a good idea?

Let’s kick things off with a quote from Wall Street Veteran Kenny Polcari:

So, what does he mean? Well, Polcari goes on to call out an important point:

❌ Price Does Not Equal Value

When a stock (or the market overall) dips, what is the reason why? Sometimes the reason for the dip can be very justified - i.e. the company had poor earnings, increased competition, or was just over-priced.

While the common adage that ‘the market always goes up in the long-run’, may be true for the market overall, this isn't always the case for individual stocks.

Take the example of Enron and Lehman Brothers in the 2000’s. After being caught up in a big accounting scandal, the companies started crashing, with investors buying dips all the way down, right up until the stocks hit zero.

⚖️ Not All Dips Are Created Equal

Now that’s an extreme example, but it illustrates an important point - not all dips are created equal. While in some cases (like the COVID crash) - a dip can be caused by the market overreacting to uncertainty (creating a buying opportunity,) sometimes it can be because a stock is genuinely overvalued, getting outcompeted, or any number of other factors…

The dip this week was driven by the tariffs - which will have a very real impact on a companies bottom line. For instance, Nike and Lululemon are down -26% and -24% this month as investors weigh the impact tariffs on Vietnam and other countries will have on these companies’ production costs.

🙈 Don’t Just Blindly Buy the Dip

So if you're considering buying a stock right now due to the dip you should be asking yourself, how will the tariffs impact this company’s fundamentals? Is the stock price reaction justified or overblown? Was the company overvalued to begin with, or is it actually now trading at a discount?

If all that sounds daunting, that’s kind of the point - if you’re investing in individual stocks, you’re implicitly making a bet that you think that company is going to outperform the market as a whole.

The point is, buying the dip in a stock can be a good strategy if it’s backed by fundamentals and a clear thesis, but if you’re just buying a stock purely due to a dip and nothing else, that isn’t really a strategy at all.

But what about buying the S&P 500 or other broad-market ETFs? Surely in those cases, buying the dip is always a good strategy?

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TOP STORY CONT.
📊 Buying the Dip: What About the S&P 500?

Ok so we talked about the risks for buying the dip with stocks - but what about ETFs? And specifically S&P 500 ETFs like ZSP, SPY, or VOO?

Well the first thing to note is that experts generally agree that waiting for a dip before investing is a bad idea, because if you’re doing that, you’re basically trying to time the market, which most experts agree is essentially impossible. 

If you’re a long-term investor, you should be investing consistently, essentially dollar-cost-averaging (DCA) into the market after every paycheck. This is because waiting to buy the dip could mean sitting out of the market for long periods, missing out on potential gains (see here for a great article on that topic).

If you’re following a consistent DCA-into-ETF strategy, you probably don’t have a lot of cash sitting on the sidelines. But should you keep investing your paychecks? And if you do have cash on the sidelines, should you deploy it or wait?

🤷‍♂️ No One Really Knows

Well, just as we talked about before with respect to stocks - it’s not like this dip came out of no-where - the tariffs are going to have a real, negative impact on the markets - with many saying that this is just the start of the pain, with legendary investor Bill Gross warning investors:

Many analysts also say the likelihood of a recession has increased drastically, with JPMorgan increasing its prediction from 40% to 60%.

So is the market overreacting and about to bounce back? Or is it going to keep falling? Here’s the truth - no one really knows.

Now more than ever, the market is full of uncertainty, and your guess about what’s going to happen next is as good as mine.

With all the wild swings going on, trying to time the market may seem tempting, but history (and data) show that it is not a successful investing strategy.

If you’re investing for the long run, stick to your plan and understand that market corrections (and even bear markets), while painful, are normal in the stock market! If you’re sitting on a bunch of cash to deploy you can either

💡 In Conclusion

To wrap up with a simple sentence, don’t just blindly buy the dip. If you’re investing in individual stocks, make sure you’re focusing on value and not price. If you’re DCA’ing into ETFs, stick to your plan and don’t let the rough waters knock you off your course!

✨ These are just my thoughts, but there were also a TON of incredible posts and discussions this week on Blossom that I strongly encourage you to check out if you haven’t already. I’ve linked a few of my favourites at the bottom of the newsletter!

🤞 Fingers crossed for better markets this week!

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FROM THE BLOSSOM COMMUNITY
⭐️ Featured Discussions this Week

👇 Click to see the full post!

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