Eric Reed
7 min read
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.
An investor who “buys the dip” might take advantage of market volatility or short-term events to ideally get a better return on investments. While timing the market and individual equity investments have their own risks, buying the dip can be a good way to invest in good assets while they’ve temporarily lost value. For example, in early 2020, the stock market took significant losses due to the coronavirus pandemic. This pulled down the value of almost all equities. Many investors took advantage of that, staging a rally within three months of the downturn.
Even high-flying companies were affected, though. For example, take NVIDIA, one of the most valuable stocks on the market. Say that you had invested $1,000 in NVIDIA stock at the trough, what would you have today?
A financial advisor can help you create a plan and identify buying opportunities.
So, what would have happened if you had bought NVIDIA during the dip?
On February 19, 2020, NVIDIA hit its pre-pandemic high at $7.83 per share. During the Covid recession, NVIDIA's share price dropped to a low of $4.89 per share.
Say that you had invested $1,000 at that low point, you would have 204 shares of NVIDIA stock ($1,000 / $4.89).
Now, NVIDIA's stock sells for around $135.40. Your shares purchased in 2020 would be worth $27,621.60 in total today (204 shares * $135.40 per share).
Some readers will note that NVIDIA's stock has split twice in the years since, first 4-1 and then 10-1, so investors will actually own 40 shares for every one that they bought five years ago. While this is true, stock charts are adjusted to reflect splits. In other words, if you had invested $1,000 in NVIDIA stock at the actual price in February, 2020, you would have likely purchased around 5 shares. Then, after multiple splits, you would hold 204 shares worth $27,621.60 today.
This would have been a strong example of speculatively buying the dip. Buying any individual equity is speculation, but like most of the market NVIDIA's decline was due to market factors outside the company's control. As a result, investors could buy in with a reasonable belief that the company's underlying fundamentals would lead to a rally.
For help evaluating NVDA and other potential investments, consider speaking with a fiduciary financial advisor.
There are two kinds of risk when it comes to investing: systematic and unsystematic.
Unsystematic risks refer to issues specific to the asset itself. In the stock market, this means any factor related to the underlying company. A business plan, for example, or corporate leadership refer to unsystematic risks. If, for example, a company's product turns out to cause an illness, or, on the other hand, if investors favor its new CEO, these factors can affect that company's stock price without necessarily impacting the price of other firms.
