If you’ve been investing for some time, you’ve probably heard of people saying you should buy the dips. How much of a dip should you buy? A dip of 3%, 5%, 10%, 20%, or 50%?
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It depends on a lot of things. The company in question should be fundamentally sound. That is, you should have determined that it’s a quality company to invest in.
Moreover, depending on the type of industry the company is in, investors might require a bigger or smaller dip from the stock. It’s normal for stocks to move up or down as much as 3% on a given day. When it’s earnings season, stock prices can be even more volatile.
Most importantly, investors should consider the valuation of the company. If a stock is overvalued, and it had bad results in a quarter or multiple quarters, the stock will be hit hard.
Take a look at Cineplex Inc. (TSX:CGX). The stock is nearly 35% lower than it was a year ago. In 2013 to 2017, the stock was trading at high multiples, but it wasn’t growing at a high pace. Perhaps buyers at the time felt they were paying up for quality. However, with the correction that the stock has had, it indicates that growth rates are