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This is great! Glad I asked this question. The polling came out pretty tight.
Is “buying the dip” different from “timing the market?”
Let me give you a little opinion and a little fact…
1/ https://twitter.com/BestInterest_JC/status/1350579395048697863
Is “buying the dip” different from “timing the market?”
Let me give you a little opinion and a little fact…
1/ https://twitter.com/BestInterest_JC/status/1350579395048697863
My 2 cents:
They’re the same.
“Don’t time the market” is a way of saying:
• Don’t sell bc you think the market is high
• Don’t buy bc you think the market is low
• Set an investment frequency and stick to it
“Buying the dip” feels like a violation of bullets 2 & 3
2/
They’re the same.
“Don’t time the market” is a way of saying:
• Don’t sell bc you think the market is high
• Don’t buy bc you think the market is low
• Set an investment frequency and stick to it
“Buying the dip” feels like a violation of bullets 2 & 3
2/
Back in Feb ’20, some people on here were freaking out over their perceived great buying opportunity.
The Corona dip had just started. Markets were down ~10%.
3/
The Corona dip had just started. Markets were down ~10%.
3/
But Feb ’20 stock levels were exactly the same as Oct ’19.
Why weren’t they freaking out in October ’19, just 4 months earlier?
Wasn’t that the same great buying opportunity?
4/
Why weren’t they freaking out in October ’19, just 4 months earlier?
Wasn’t that the same great buying opportunity?
4/
I can tell you why.
It’s the same reason your mom freaks out when Old Navy has a 10% off sale.
Our monkey brains react irrationally to discounts.
My thoughts from then (when I first met @BackpackFinanc1!). If you like my Tweets, you’ll like this.
https://bestinterest.blog/stock-market-coronavirus/
5/
It’s the same reason your mom freaks out when Old Navy has a 10% off sale.
Our monkey brains react irrationally to discounts.
My thoughts from then (when I first met @BackpackFinanc1!). If you like my Tweets, you’ll like this.
https://bestinterest.blog/stock-market-coronavirus/
5/
So let’s talk facts:
If you think a “buy the dip” strategy could work, I think you should backtest your strategy against historical data
Don’t have the time for that analysis? No worries.
I did the work and you're 100% welcome to use it.
6/ https://bestinterest.blog/stock-market-strategies/
If you think a “buy the dip” strategy could work, I think you should backtest your strategy against historical data
Don’t have the time for that analysis? No worries.
I did the work and you're 100% welcome to use it.
6/ https://bestinterest.blog/stock-market-strategies/
Article summary:
If used consistently over time, no “buy the dip” strategy ever works.
No strategy. Ever.
Not for 1% dips.
Not for 2%, 5%, 10% dips.
Why not?
Because “buy the dip” implies you’re *holding onto cash* while waiting for that dip.
7/
If used consistently over time, no “buy the dip” strategy ever works.
No strategy. Ever.
Not for 1% dips.
Not for 2%, 5%, 10% dips.
Why not?
Because “buy the dip” implies you’re *holding onto cash* while waiting for that dip.
7/
The market tends to increase in value (with or without you)
Simple example:
You hold cash
The market increases 30%
...then drops 15%
You buy the dip
…and the market is 11% higher after the dip than when we first started!
(1.30 * 0.85 = 1.105 --> 10.5% increase)
8/
Simple example:
You hold cash
The market increases 30%
...then drops 15%
You buy the dip
…and the market is 11% higher after the dip than when we first started!
(1.30 * 0.85 = 1.105 --> 10.5% increase)
8/
This “example” is very simple, yet is borne out time and again over the historical record.
The market goes up more than it goes down.
9/
The market goes up more than it goes down.
9/
So, back to my original point:
I think “buying the dip” is the same as “timing the market.”
I also think the facts bear out that “buying the dip” is suboptimal.
And, after all, the reason they tell you “don’t time the market” is because it’s a suboptimal practice!
10/
I think “buying the dip” is the same as “timing the market.”
I also think the facts bear out that “buying the dip” is suboptimal.
And, after all, the reason they tell you “don’t time the market” is because it’s a suboptimal practice!
10/
Ok—enough out of me.
What do you all think?
Useful info? Or am I obviously erroneous?
If you got this far, you rock!
Thanks for reading
/end
What do you all think?
Useful info? Or am I obviously erroneous?
If you got this far, you rock!
Thanks for reading
/end
