Sam Zell Is Buying the Dips | Chief Investment Officer

Well, somebody isn’t afraid to buy the dips. That would be Sam Zell, nicknamed “the Grave Dancer,” who made his fortune buying distressed assets, mostly in real estate.

But now, billionaire financier Zell told CNBC that he is buying falling stocks, as the coronavirus-spooked market tumbles. Although he was coy about the specifics of his purchasing, he indicated he is moving in on the most beaten-up stock sector of all: energy. Plus, he has been buying energy company bonds and, ever the real estate guy, existing drilling sites.

“We’ve been buying some stuff that we thought was ridiculously low,” he said. “But not a lot.”

Energy stocks have fallen more than 30% this year amid plunging oil and natural gas prices. This has prompted the Organization of the Petroleum Exporting Countries (OPEC) to try to cut production in a bid to bolster prices.

“We think the energy space is really cheap … and what helps is we were not in the energy space before,” Zell said, pointing out that customary oil and gas investors already have bought at higher prices and now don’t have enough capital left for bargain hunting. He added that he “always keeps track of energy” in case some cut-rate opportunities are available.

In the current environment, his strategy, of course, smacks of market timing. The difficulty with that tactic is knowing when during a market plunge is the right time to get it, for prices might fall a lot more. Buying on the dips means snapping up momentarily low stocks, assuming they will rebound soon.

Two weeks ago, economist Mohamed El-Erian cautioned against buying on the dips, which he considered too risky. A recovery “will take time,” said the chief economic adviser at financial giant Allianz. “Economic sudden stops are hard to restart.”

After hitting a record last month, the S&P 500 has been on a rollicking ride, losing 3.4% on Thursday and down 6.4% for 2020. From its peak February 19, the index has dropped 10.6%, which puts it in correction territory (a fall of 10% or more from the zenith).

Certainly, a number of Wall Street figures believe that, once the virus recedes, the market will bounce back nicely. Hence, buying cheap makes sense to them. Former Bear Stearns economist Larry Kudlow, now head of President Donald Trump’s National Economic Council, has prominently advised investors “to think about buying the dip.”

The strategy of late has required a strong stomach, however. The S&P 500 jumped 4.6% on Monday, slid on Tuesday when the Federal Reserve announced an emergency rate cut, and popped up 4.2% on Wednesday.

More gyrations are likely in store amid rapid developments on the virus front. California’s decision to declare a state of emergency Thursday was a catalyst for the latest decline. Volatility has surged from a placid 15 in mid-February, as measured by the VIX index, to a hot-tempo 41 now.