The problem with having a "buy the dip" strategy is that sell-offs are the scariest time to put money into stocks. People sitting on the sidelines have spent nearly 6 months telling themselves they were going to get long as soon as they got a meaningful pullback. Now that the most serious drop of 2013 is upon us the question is whether or not it's a good idea to be getting long when China is contracting, the Fed might taper, and stocks are still arguably way overbought.
Todd Schoenberger, managing partner at LandColt Capital, mocks the idea of taking profits and hitting the beach. "No Way! Are you kidding me?" he shouts in the attached clip. "If the markets go down 2 to 5% it's a great entry point for your viewers to get back into the market. Dow 16,000 by the end of the year."
The Dow Jones Industrial Average (^DJI) topped just over 15,530 on Wednesday morning. For those not carrying a slide rule at the moment, a 5% correction would put the Dow at 14,750, give or take. From there a recovery to 16,000 would be a gain of 8%. That's just the arithmetic, not a trading thesis.
Schoenberger's idea on the sectors that will do well into a pullback and during a subsequent recovery are oil and gas, travel and leisure, and almost anything multinational. As he sees it the DC ineptitude and geopolitical risk are priced into the tape.
"The headwinds aren't there right now," Schoenberger insists. Sequestration, debt ceilings and anything having to do with North Korea are either non-factors or yesterday's news. Dips are to be bought even if they're driven by the fundamentals. No matter what Wall Street thinks Bernanke said, quantitative easing isn't going to end anytime soon. With yields stuck at or near rock bottom, stocks are the only game in town and Schoenberger says that's going to be the case for the foreseeable future.
Now all investors need to see is a 5% correction and the intestinal fortitude to buy the dip.
- Financials Industry
- Dow Jones Industrial Average