Why is it that investors find it easier to keep buying when markets are going up rather than down? The goal of an investor should be to get the best price possible, yet emotions often get in the way.

A rising market makes it feel as if everything is going to work out fine. An investor might think markets will keep rising and everything they buy will appreciate in value. In contrast, a falling market can trigger fear and make you wonder what nasties are lurking around the corner.

The Liberation Day-induced crash in financial assets effectively put the market ‘on sale’. It created an opportunity to buy thousands of stocks and funds at a lower price than they’d traded only days earlier.

An investor with a long-term horizon might have taken the view that market declines are perfectly normal – and history shows that is correct – and that asset prices will eventually recover. Therefore, buying on the dip is a means by which to snag a bargain.

Certain people will have had their eyes on a stock in the past that looked interesting but too expensive. It’s times like now that it’s worth dusting off that wish list. For example, two of the best gains I’ve personally made in my portfolio have come from buying during selloffs in 2016 when the Brexit vote toppled the market and during Covid when the pandemic hurt shares globally.

HARDER THAN YOU THINK

With the benefit of hindsight, it’s easy to look at the past and say market dips are perfect times to buy. However, investing when markets are weak takes nerve. When you’re in the heat of the moment, it feels like you’re about to jump off the diving board, hoping you’ll glide into the water but secretly fearing you’ll do a belly flop.

Five years ago, when Covid caused a global market crash, one might have taken the view that scientists would eventually create a vaccine to lift the world out of the pandemic. Therefore, buying on the dip might not have felt like such a leap of faith.

Liberation Day has a different vibe, and one where it’s harder to predict the long-term impact of Donald Trump’s sweeping tariffs. That makes buying on market weakness a higher-risk decision, certainly while the situation around tariff rates keeps changing.

Worst case scenario, Trump’s tariffs completely change the flow of trade globally and cause major disruption to supply chains and company profits. Best case scenario, Trump rolls the tariffs back. It’s still a fluid situation and trying to time the market is an impossible feat. That means regular investing is the way forward – continue to make monthly contributions to your ISA or pension and stay focused with the same investment plan as pre-Liberation Day.

BUYERS OUTWEIGHED SELLERS TWO-TO-ONE

Looking at trends among DIY investors using AJ Bell’s platform, it was reassuring to see that individuals weren’t panicking when the Liberation Day market selloff unfolded. Trading activity was double normal levels on the second and third day of the market selloff as investors moved to protect and reposition portfolios. Customers buying investments outnumbered sellers two to one.

The start of the selloff also coincided with tax year-end, meaning lots of customers will have topped up their ISAs and pensions to use any allowances they had remaining last year and the new allowances that have become available this tax year.

HOW AJ BELL CUSTOMERS INVESTED

The way individuals respond to the selloff will depend on their own personal circumstances. However, there were three clear trends among AJ Bell’s DIY investors who felt confident enough to keep buying during the first week of the market sell-off.

With so much uncertainty around which countries and companies would be winners and losers, investors took a broad approach by casting their net as wide as they could via global equity market tracker funds. Fidelity Index World (BJS8SJ3) and HSBC FTSE All World Index (BMJJJF9) were among the most popular fund choices, offering low-cost exposure to stock markets around the world.

When markets are rocky, it’s natural to turn to old friends who have made you good money in the past. US equity tracker funds such as Vanguard S&P 500 ETF (VUSA) and chip giant Nvidia (NVDA) might have gone off the boil this year, even before Liberation Day, but they’ve delivered the goods big time in preceding years. Investors might have seen them ‘on sale’ as a result of the market sell-off and pounced on the opportunity to buy at a much cheaper price than seen for a while.

Finally, investors scouted for opportunities for stocks that might not be the most exciting, but which have been bashed around and subsequently offered high dividend yields as a result of the share price weakness such as Legal & General (LGEN), or where a decline in their price to earnings metric made them look more interesting from a valuation perspective which was the case with Barclays (BARC).

For the first week post-Liberation Day, Barclays was the most popular UK stock for AJ Bell DIY investors. Banking shares initially fell as investors worried about the prospect of a global economic slowdown and how that might translate into lower demand for lending, and a rise in bad debts for those who have already borrowed money.

In Barclays’ case, its exposure to investment banking also made it a potential loser from the trade war if that led to ongoing market volatility and a reduction in M&A activity, curbing its income for deal advice and fundraising. Certain investors might have taken the view that the shares had fallen far enough whereby the risk/reward ratio favoured buying.

Disclaimer: AJ Bell, referenced in this article owns Shares magazine. The author (Dan Coatsworth) and editor (Tom Sieber) own shares in AJ Bell.

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