Say, to make money on the stock market, we must wait for the market correction, buy stocks and forget about them for several years. Even if the correction is slightly delayed in time, then there will be no losses, since the loss has not been fixed yet, then it is not. You just need to hold the shares and not sell them until they grow and a significant profit is made.. Quite a logical idea, at first sight, because stocks always go up, so why fix losses — you just have to wait until the stocks rise and everything is done.
But let's take a closer look at the technology of acquiring shares during a correction.. A logical question immediately arises here. — what is considered a correction, when to start buying shares? There are two extreme scenarios for the development of events, and each has its own disadvantages.:
1. Buy during minor correction, for example -10%. But is the entry price too high?, as the market could fail even more.
2. Buy during a major correction, Sort of -60-80%. But such a correction may not be expected during the course of your activity on the exchange., and money will stand idle and depreciate.
That is, the point is that you want to buy as cheaply as possible, but whether it will be allowed to do it raises a lot of doubt. And buying at a higher price is fraught with a further large and prolonged drawdown.
I am sure, that the vast majority, which 95-98% from all investors, просто посмотрят на schedule индекса за последние два-три года и определят максимальные коррекции за этот период. For example, there were a couple of corrections for -20%, this figure will become decisive for the purchase. Let's see how it would look in the distant 1929 year for the American market. The market grew, nothing foreshadowed trouble. Someone was waiting for a correction, the size of the previous. And finally, waited — bought shares on the index correction -20% and began rubbing his hands in anticipation of future profits.
The market is down, no problem — until the loss is fixed, he is not. All that had to wait 25 years to close your investment to zero, break even.
Dissenters, I think, getting ready to start a song about dividends, Sort of, the share price is not important, the main thing is that dividends are paid, and the return of the price can be expected for a hundred years. But the problem is that most companies during this period not only refused to pay dividends, but also completely ruined. And this means that, least, half of the investments turned to zero and close at breakeven in 25 years, like on a picture, in fact it would not work. Not to mention inflation and depreciation of money.
Good, but the smartest, of which in total 2-5% from all investors will not make a full purchase of shares at the same price, that is, when the market corrects by -20%. They will still leave money for correction in 35% And 50%. Unless such a deep correction happens, then they will be present in the bull market underinvested on 66% and as a result, they will show the result much worse than the benchmark. But, allowable, that they were right and the market reached their planned entry levels.
Total, ideally, will have to wait 22 years to close at zero. But given the massive bankruptcy of companies, wait for breakeven.
Now let's play with interest. Someone will say what to buy at 50% correction as it is safe, because the market has already dropped by half, and the rest of the half will somehow survive, if anything. But interest is such an interesting thing. — allowable, bought for correction in 50%, but, how it turned out, from the point of purchase, the market subsequently declined by another 79%. Imagine a drawdown 79% on account. Almost no one can stand it. Will run away from the market with a meager balance of money much earlier.
Well, if you buy at 70% drawdown, then this is definitely a safe investment, since there is nowhere below. But, as it turns out, even after this level of purchase, the price dropped by another 64%.
Even after 80% Fall, the price dropped by another 47%. Imagine you invested 100 000 dollars at a safe level, when there is nowhere lower, and after a couple of months there were only 53 000.
And now, summarizing, I'll tell you a secret, even if we bought shares after the index fell by 99%, over time, from the entry point, the index may fall by another 99%. This is such a thing — interest…. :)
So that, hardly anyone can get rich by buying (or not bought, who failed) stocks on correction. Except that, smartlab analysts :)
