They only like it when it's going up. They hate it when it's going down. That's been the story of this tape for ages, and it's the story now.
I know that we often use the phrase "buy on dips." But I think it's become a little hackneyed and certainly not descriptive enough.
Buying the dips is really shorthand for a process that has to do with buying stocks when enthusiasm cools -- the flipside of selling when enthusiasm is insanely positive. When enthusiasm cools in this market, all stocks are abused, including many that shouldn't be.
Let me give you a classic example: Oracle (ORCL) . A little more than two weeks ago, Oracle reported what I would regard as its best quarter in many, many years. A seminal three months. The company has been making a bet on the cloud that's really come through, and now its gross margins are expanding on its new enterprise resource planning cloud offerings, as well as many other cloud verticals, as they are called, which its customers both old and new seem to like very much. Plus, the run-off businesses, including the fabled on-premises legacy accounts, have stabilized at a higher level than thought possible.
That's highly unusual, and the quarterly conference call had one of the highest congratulations to questioner ratio I can ever recall because of it.
The stock vaulted to $52 from $46 almost immediately and at a pretty reasonable 17 times next year's earnings it seemed like you could expect a strong re-rating of the stock upward that would drive it to the mid-fifties handily; $52 a share is just too cheap if the growth from this quarter is sustainable, and I think it very much is.
But what's happened since that report? The stock's been headed down. It's now back to $48 and change, just two bucks above where it was when it reported that game-changing quarter.
Everyone loved this stock when it when it was screaming higher off that quarter. Now you can't get rid of the thing.
I would suggest buying Oracle here, as it is a classic "buy the dip" situation. But part and parcel with the buying the forlorn is you don't know when they are going to become less forlorn. You would have to buy some Oracle stock here and then some lower if it trades almost at the exact same price before the game-changer.
Now, I am not saying that the quarter was like the one that propelled Nvidia (NVDA) from $102 to $160 or the one that took that stock from $67 to $91 in the fall of last year. Those were legendary quarters that revealed a company that was far more than just a fast chip maker for gamers.
What I am saying, though, is that Oracle is a better company at $48 than it was when the stock was at $46 right before it reported, but now nobody cares. Why?
I have only one answer.
Because the stock is going down. I know that is circular reasoning: the stock is going down because nobody cares that it is going down. But believe me, if the stock of Oracle were to change direction it would gain adherents as it climbs as quickly as it is gaining sellers as it goes down.
This behavior is pretty much par for the course of this market, where a stock falls out of favor after really good news, usually as part of a general decline like the one the Nasdaq is experiencing. Then the stock gets back on track when people remember how good that last quarter was.
I picked Oracle but I could have picked Nike (NKE) , which is exhibiting the exact same pattern as Oracle: great quarter that's then forgotten and met by selling. Six or half dozen, actually.
I think the real opportunities in this market come from the stocks of companies that reported sharply better-than-expected quarters that then languish or go down as part of an overall market selloff like we are having.
Notice, I am not saying buy anything that goes down. Far from it. I am not yet drawn to retail that's been Amazoned or even potentially Amazoned.
I am saying, if you refine the "buy the dips" policy into something more intellectually satisfying, namely buying the stocks of companies that reported terrific quarters yet their stocks have approached or broached the levels they were before the reports, gives you the best opportunity to make money when the market turns or the sellers come to their senses and turn on another name that's more deserving of their "sell, sell, sell" opprobrium.