There is an issue with this train of thought -
A key assumption behind the above train of thought is that
the “most individual investors” / “average investors” have no assets/cash-flow to handle emergencies.
Anything to justify the assumption?
Another assumption is that dips always coincide with times of emergencies. This is not true for all asset classes. Also not true for several individual stocks that often face draw-downs unrelated to factors that affect retail/individual investors to trigger a financial emergency.
Factors that can explain the sub-optimal behavior
without having to rely on the excuse of fear and uncertainty are
the “investor’s” lack of discipline and lack of financial awareness.
Coincidentally, this is being discussed earlier today in this thread.
A potential takeaway from this train of thought would be -
“Buying the dip” in times of crisis,
starts by first preparing in times of plenty,
by
- diversifying one’s portfolio
- accumulating cash / liquid assets / future cash-flows
In other words,
financially irresponsible folks during times of plenty,
will be forced to be financially irresponsible in times of crisis too.