After a week of FTSE 100 falls, is it time to buy the dip?

We don’t often get a solid week of stock market falls. But if I think the Footsie is cheap, I like to buy the dip when it happens.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

happy senior couple using a laptop in their living room to look at their financial budgets

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Before picking up a little on 22 August, the FTSE 100 had fallen for seven trading days in a row. It’s now down 10% from its 52-week high in February. So should we buy the dip?

My answer is a resounding yes. But I think I owe folks a bit more than that.

First, I wouldn’t buy anything only because it’s fallen. If shares are cheaper than a week ago, or six months ago, they could still be too expensive.

It’s all about share value for me. And if something was already good value, it’s usually better value in a dip.

Here be charts

People often talk about buying the dip when they engage in technical analysis (or TA for short).

TA uses the belief that we can decide whether to buy or sell based on patterns we think we see in share price charts. Not valuations, just the patterns.

If people think they can divine the future of stock prices by scrutinising chart shapes, all power to them. But I’ll have nothing to do with it.


The idea that we should buy the dip also directly contradicts another old investing maxim, that we shouldn’t catch falling knives.

So how do we tell which is which, a dip or a knife? Well, we just wait another year and use hindsight, see?

OK, seriously, we should never use rules of thumb like this blindly. No, for me, it’s all about whether we see good value in the investment we’re watching anyway.

It’s valuation

So if I think the stock market, or an individual stock, is undervalued, then I reckon it’s even better to buy on the dips. And if something I think is overvalued falls, quick, get out of the way of that knife.

What I’m trying to say in my roundabout way is that I think a lot of FTSE 100 stocks are screaming cheap. And they just got screaming cheaper.

Let’s look at a few individual dips. Or knives.

Dips and knives

Lloyds Banking Group shares have been sliding since February, to just 42p. That’s a forecast price-to-earnings (P/E) ratio of six, and a 6% dividend yield.

I see short-term risk, but long-term cheap. In my book, it’s a dip to buy.

Then tiny AI hopeful RC365 Holding has seen its shares lose 70% of their value in a few weeks. It’s still up hugely in 12 months, though.

I reckon it’s overhyped and undervalued. A falling knife maybe.

Not so clear?

And then there’s Ocado, dropping since late July. But I’ve never been able to decide if it offers long-term value or not. So the safe side is what I’ll err on, and I’ll avoid it.

Ehether the stock market as a whole looks undervalued, or overvalued, I think there will always be dippy buys and cutty knives to deal with.

Deeply dippy

Right now though, with the FTSE 100 barely above 7,200 points (at the time of writing), I think there are far more dips to buy than knives to dodge.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc and Ocado Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Why the FTSE 250 looks an incredible bargain

While all the attention is on the elite FTSE 100, the mid-cap FTSE 250 index looks unbelievably cheap. I don't…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

Here’s my plan to make the most of juicy UK shares ahead of 2024 and beyond!

Our writer reckons there hasn't been a better time to snap up quality UK shares. She explains how she's planning…

Read more »

Young Black woman using a debit card at an ATM to withdraw money
Investing Articles

Here’s how many Lloyds shares I’d need to buy for a £100 monthly income!

Offering a higher dividend yield than the average across FTSE 100 stocks, are Lloyds shares worth buying for passive income…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Up 27% in 2023, what next for the Tesco share price in 2024?

The Tesco share price has had a great 2023, rising 27% while the FTSE 100 was flat. But what might…

Read more »

Hand is turning a dice and changes the direction of an arrow symbolizing that the value of an ETF (Exchange Traded Fund) is going up (or vice versa)
Investing Articles

FTSE 250? No, I’d buy this index fund instead

Investing in index funds can be a profitable enterprise. Our author has been exploring the different options to determine the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

This 4% yielding FTSE 100 giant is dirt-cheap and perfect for passive income!

Looking for a mammoth business with shares trading at discount levels and offering an excellent passive income opportunity? Our writer…

Read more »

UK money in a Jar on a background
Investing Articles

Here’s how I’d use dividend shares to try and turn £5,000 of savings into passive income of £900 a year

With dividend shares at today’s prices, Stephen Wright thinks there are two ways to turn a £5,000 investment into something…

Read more »

Investing Articles

After a recovery that Lazarus would have been proud of, is the easyJet share price worth a look?

With its dividend restored and its balance sheet repaired, the easyJet share price looks like a bargain. But Stephen Wright…

Read more »