When does a buying opportunity become a cause for concern?

Hi all,

First post, very new to the game so looking to pick up as much advice as possible from you knowledgeable folk!

One thing I see time and again, here and elsewhere, is that when a share price decreases it is a good job opportunity to buy, as you get the share cheaper and will reap the reward when it recovers. I understand the logic, as these things are cyclical and the market always recovers.

However, although the MARKET always recovers, of course this isn’t necessarily true of individual companies within the market. So, (and I appreciate that this is, potentially literally, the million dollar question) is there a good method of identifying a “blip”, and therefore a buying opportunity, vs a larger cause for concern from which there will be no recovery?

Thanks in advance!

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No, there is not. Otherwise everbody would be a millionaire.
Your summary of the situation, however, was spot on. That’s why large parts of your investments should go into funds or market trackers.

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@SebReitz is right. I’d always back the market first.

However, I also love buying a dip. I’d personally look out for the following:

  • What’s caused the dip? Is it Macroeconomic?
  • Is it a short term or long term issue.
  • How severe is the issue, take BOEING having to raise debt, how long will this issue last.
  • Does the business still have good fundamentals?
  • Does the market have the ‘legs left in it’ for the business to return.
  • What steps have the business taken to rectify.
  • Check out the competition and how they’re responding.

Generally speaking, if you can satisfy yourself that the business can recover after checking everything, then go for it.

And if it fails, note down why and add that to your checklist for next time.

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Thanks very much for this @anon810895, this is exactly the sort of response I was hoping for, I want to get to a point where l’m able to apply a bit of analysis and understand why things are happening but I’m nowhere near that yet.

@SebReitz that’s the aim, majority of portfolio in funds and then, say, 20% in individual holdings. I’m planning to focus on dividend rather than capital growth, so would like to be able to identify buying opportunities to maximise capital growth without deviating much from the larger plan, hence my question.

Thanks very much for your responses, if anyone else has any insights to share then please chime in, I’ve got a LOT to learn!

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I’ve been lucky this year. A few times I’ve spotted a dip and timed it well.

For example:

I think I pretty much nailed the timing of this lot.

However, I bollocksed up these ones:


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Plenty of good ideas here that might help you weed out bargains from the rubbish:
https://www.ukvalueinvestor.com/

Also has a few resources available, checklists etc. that can help get you started.

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