Ben Emons, Columnist

The Simple Reason Why Buy the Dip Rules Investor Behavior

Since the 1990s, the assumption has been that when things get bad, central banks will come to the rescue.

September 8, 2017 at 5:30 AM UTC

Ben Emons is the founder of FedWatch Advisors, a firm specialized in analysis and investing around the Fed. Previously he was associated with NewEdge Wealth as head of fixed income and Medley Global Advisors as Managing Director of Global Macro Strategy. The opinions expressed are his own.

There's a reason why investors are fearless these days.
Photographer: Jewel Samad

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Tensions on the Korean peninsula are intensifying almost by the hour, and yet markets appear relatively sanguine. What gives? There are a few reasons why, starting with data showing positive momentum in the global economy. Also, financial conditions have been exceptionally loose, in part because of the dollar’s weakness. And investors consider the nuclear threat from North Korea to be little more than saber-rattling.

But perhaps the main cause of the tranquil state in markets is the assumption that when things get to the point that the global economy is in jeopardy, central banks will come to the rescue. That’s been the case since the 1990s. Investors even have a term for it: the central bank put. They know that investing during periods of stress can be quite rewarding. So much so, that investor behavior these days is largely driven by a fear of losing out on big returns. As Warren Buffett likes to say, the best time to buy is when others are fearful.