Buying The Dip
Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re talking about buying the dip. This is when the market is inefficient and people overreact to a piece of news. These events are clear when they’re happening, yet they still occur regardless.
I remember very vividly during the pandemic when oil consumption collapsed briefly, leading to a short term oversupply of crude oil around the world. Oil prices went negative as owners of futures contracts could not find storage capacity to take actual delivery of the oil. Now, clearly, oil prices should never be negative. If you could get your hands on storage capacity, you stood to make a lot of money buying oil at those negative prices. Personally, I didn’t have the relationships necessary to secure the storage and take advantage of the opportunity. However, this is an example of buying the dip. It was an overreaction to market conditions. It was the result of inefficiency in the market.
As efficient as we think the market is, it is often driven by large swings in market sentiment, with large groups of investors all drawing the same conclusion at the same time. We saw a similar effect in 2022. The thinking at the time was that oil sanctions imposed on Russia would remove between four and five million barrels of oil a day from the market. However, the oil sanctions did very little to stop the flow of Russian oil. The routes and customer relationships changed, and after a short time, the market rebalanced itself and there was really no shortage. The spike in prices was an emotional aberration. It was an overreaction.
These market overreactions happen with striking regularity, we often see it also in foreign currency exchange. The Canadian dollar recently fell to a 22-year low in a few weeks, based on the assumption that tariffs imposed by the White House would crush the Canadian economy. The Canadian dollar has recovered about 2 cents in the last few days, but is still four cents below where it was in the fall.
We know that there’s an opportunity in many real estate markets, but if you could find an opportunity four cents cheaper, six cents cheaper on the buy side, then that seems like a bargain. It’s a discount, although you are speculating on the added leverage of the foreign exchange. That could be an opportunity to make a slightly outsized return on your investment. So, keep your eyes open and position yourself to be agile and nimble. The opportunities will present themselves, but they won’t sit around on the shelf forever. When you think about that, have an awesome rest of your day. Go make some great things happen. I’ll talk to you again tomorrow.
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