5 Jun 2024

My experience ‘buying the dip’

Indian equity market fell hard on 4-Jun-2024 following the apprehension caused by the parliamentary election results. The Nifty 500 index fell by 6.71% in a single day.

My regular equity investment was due, but I was waiting to take care of some pending expenses. Seeing the index fall so much in a day, I decided act quickly. I pumped the money in to “buy the dip”.

Motilal Oswal Nifty 500’s NAV fell by 6.7% in a day. (Graph from ValueResearchOnline)

Investing as soon as I saw a big fall was a knee-jerk reaction. I hadn’t really thought through the impact of such an investment. During the whole day, I was consumed by thoughts about the election result and what it meant for the future of the country. Only much later, I looked at the NAV graph to see what this 6.71% discount meant.

To my surprise, this fall hadn’t even brought the fund to its 30-day low! The fund’s NAV on May 9th was ₹23.2971; the NAV after the June 4th’s fall is ₹23.3253.

Motilal Oswal Nifty 500’s NAV on 9th May was ₹23.2971. (Graph from ValueResearchOnline)

Expanding the horizon to 3 months, we see that the NAV on 19th March was ₹22.4901.

Motilal Oswal Nifty 500’s NAV on 19th March was ₹22.4901. (Graph from ValueResearchOnline)

Going back 6 months, the lowest NAV has been ₹21.3039 on 5th December 2023.

Motilal Oswal Nifty 500’s NAV on 5th December was ₹21.3039. (Graph from ValueResearchOnline)

If I had deployed my cash on 5-Dec-2023, my investment would have grown by 10.32% despite the fall on 4th June.

I already wrote about the futility of trying to buy the dip, and the current fall only reaffirms what I already knew. Sitting on cash is not a prudent way to buy equity at a cheap price.

Nevertheless, I do not regret making this investment. This was money I had anyway kept aside for buying Nifty 500, so I haven’t strayed away from the plan too much.

The price I got was lower than the previous day’s price, but the index can very well continue to fall until a stable government comes into place. If the index continues to fall, my haste would have resulted in the loss of a better opportunity.

But the reality is that, whatever price we buy at, the price will eventually fall below it. Whatever price we sell at, the price will eventually rise above it. Lamenting our buy/sell decisions can never be productive. If I stay invested for a decade+, all these falls and rises will eventually prove too small to matter anyway.

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