The basic idea behind buying on dips is to accumulate a certain stock you are interested in at a time when it has already fallen to a level from where there will less likely be a fall. Ofcourse the stock may still fall a bit but then it will bounce back immediately from there as the market goes up making you gains. Also by this strategy, you get a chance to get entry into a stock at a lower level thus maximizing your gains from that certain stock.

What a lot of new investors do is buy the stock when its constantly going up and then they end up buying the stock at a peak from where it falls giving them a loss and thus creates a panic in them. Often at this step they get upset and sell off that stock thinking their investment was horrible and the company has no potential at all. The common thing among every stock is they always rally up along with the market and once the correction in that stock or the market itself comes, the stocks fall down to certain extent, where it consilidates and again with the market goes up. It is at this post correction phase that you have to accumulate the stock from where the only way is up (unless the market sees an unexpected dip).

I would suggest to monitor the stock for a certain time. Have a look at the weekly and monthly graph for that stock (try money.rediff.com) and see if the stock has only rallied up or even corrected. See what the technical analysts are talking about the stock (try moneycontrol.com). And if the stock has only rallied up, then wait for a correction in the stock and then enter it.

I would say that every stock that I bought into at a peaks have only given me a loss and every company that I entered at post correction phase which is the consolidation phase has only given me profit. So I am sticking with the buy on dips strategy. Are you?

Categories of people: -

1. Spend everything and save nothing - These people have a habit of spending everything they earn. They will spend everything to make their life luxurious right from the start. They will buy a good home, large TV, big car, costly dining at hotels etc. And after all these spending, their interest will be so high that they will not be in a state to save anything. Thus they live a life of luxury enjoying and anytime they have any money left, they will go and buy something else as this is the time to enjoy and savings and all can be done later on in life. Satisfying themselves by planning to start saving later on in life is pretty common with them. But remember that once you get into a habit of spending everything, it is very difficult to resort back. You just cannot see a lot of money in your hands, you are addicted to spending and without spending you wont feel nice at all. And thus the “will save later” story will continue on and on. Now remember, you earn nothing extra, you have no savings and thus your passive income is zero.

2. Save everything and spend nothing - These people have a habit of saving up everything of what they earn. They would just have some minimum expenses and rest of all will get saved into bank or invested into stocks. They have extra expenses once in a blue moon. Well of course they will end up having a lot of money, especially passive income from the investments and savings, much more than the category 1 as time passes, but I would ask that what is the use of earning money if you just cannot spend anything? You still live in a small home, drive a small car etc, and live a frugal life forever. I believe that saving is good but just saving and no spending is not justified. They might enjoy their life like that but I’m pretty certain that if they spend only a part of their income in improving their lifestyle, they would be happier. And I am not asking to spend everything, but spend only a part of. Let the passive income flow in and spend some of your income and reduce the saving as by this time the passive income is already generating nicely and the only way for it is up. So just spend a little bit and see how your life improves and makes you even happier.

3. Spend some and save some - Probably the best category out there. Here people save and spend both. You are spending a part of income on enjoying the life and saving a part of income to enjoy even more in the future. Since money is getting invested into the stocks, passive income will flow into the pockets, so tomorrow is bright for sure and even today is not dull at all. You don’t lose the habit of spending and you also have the habit of saving. This way we can enjoy life forever, once a good passive income flows, we can get richer than the one who always spent everything, we can even buy everything they have and still have savings increased as the passive income would flow till your savings stay invested and which always will. They will be less rich than the category 2, but the life prosperity would definitely be higher.

I will discuss more on savings and importance of savings in upcoming posts. Stay tuned =)

Benefits Of SIP

• SIP offers you tax benefits which could come in handy if have to pay income tax.
• Regular Investment makes you disciplined in your savings and also leads to wealth accumulation.
• SIP comes with a locking period, so even if you wish to spend you cannot as the funds are locked and cannot be taken out.
• In SIP, invest as low as 500 or 1000 rupees. There is no need to worry if you do not earn a lot of money as you can still be a market investor with as low as 500 a month and even that would come up to be quite a good sum after a few years.
• In SIP, you invest in mutual funds where your investments are managed by market experts and professionals who have good knowledge in this field, so you have a chance to do much better than that of investing yourself alone.
• In SIP, you will be purchasing units at all phases of the market, high or low, depending on that you get the units share and so you dont need to worry about market going up or down. But just have to wait for the right time to take out your money after the scheme is over and no more deposits are being done. Thus your investments get averages out at the end and the loss is very limited which isnt the case when you invest all at once.

In SIP method, you buy share units every month/quarter based on the share value at that current time. So it balances itself at the end, since we know that the market keeps going up and down every time and your shares will be bought at a time the market is low, as well as at the time the market is high. If the market is too high at a time you want to invest, SIP is the best way to go, since if you invest a large sum at a high price and the market falls, your large sum value will go way down but in SIP, you only purchased a little bit at that high time and once the market falls, you do incur a loss but only on the small sum you invested, all the rest of the investments that will proceed in further months will be bought in a lower market value. So like I said, it averages out at the end.

But remember that SIP does not offer you a very high gain that you can get from a one time investment of a large sum but it is more sort of a very safe play and plus keeps regular disciplined savings. If you have a large sum of money to invest in the market and want a good gain on it then prefer some one time investments of large sums in different sectors of the market, specially at a time when market is going low.