Have a simple rule: If it's more than three then go on a spree.
If on any trading day S&P500 is -ve >3% then buy the index etf. Have done a rudimentary back test during bear markets of 2000, 2008 and 2020..seems to work..
Good point, statistically speaking yes .. double your investments in dips... Managing the cash flow is where the challenge is.. if you had planned an investment of $100K , chances are you might have used most of it during the bull phase or bought at near all time highs!! And now with dips, you don't have any cash left to invest ...
If you are really highly risk taking person , take a personal loan of double your invested money and invest it during dips.. not really a sound advise.
So the best strategy is to keep investing a fixed amount regularly and maintain it.. immaterial of the market direction ... Just like the Average Andy in this article.. always the best strategy for retail investors . Fixed amount every month.
This analysis assumes that the double-down money comes from thin air. If you’re going to invest double in the dip, you needed to NOT invest the equivalent dollars in the initial stages.
I'd love a follow-up article on cash management strategy comparisons - it could use the buy the dip example referenced "When the market goes below 10% of the previous all-time high (let’s call this the threshold)..." and investing double, but give reference percentages to invest of available cash.
It could compare 1) that vs 2) always being all-in vs 3) holding cash until an even higher cut-off. I tend to have the problem of frequently being all-in, and can't employ a doubling down strategy (without leverage or selling). Thank you for great content!
Thank you for another interesting article. Something I've been wondering, but is rarely, if ever discussed: simply opting out of the stock market. Could there be a useful strategy to fully switch back and forth between the stock market and something basic, like a high-interest savings account?
For example, when the S&P 500 drops a few percent from a previous high or dips below a 10-month moving average - or whatever turns out to be the most optimal indication of a dip - the investor might sell their portfolio and move it all to short-term bonds or a savings account with a small, but positive, return and continues to contribute.
When the S&P increases a few percent from the low or rises above a short-term moving average - again, whatever proves to be the most useful indicator - the investor moves their money back into the market.
Of course, this exposes the investor to the first part of the dip and they miss out on the first part of the recovery, so this would require careful choice of the criteria for taking action - and the criteria may not be symmetrical. Still, ignoring tax implications, is there a viable way to simply opt out of the worst of the market's fluctuations?
"During the last three major drawdowns, semiconductors, tech, and financial stocks were the worst affected. On the other hand, consumer staples, healthcare, and telecom have seen a drawdown much below what the market sees on average. "
Doesn't that mean tech etc are the ones you *should* buy into, rather than consumer staples etc? Not sure I get the conclusion.
Have a simple rule: If it's more than three then go on a spree.
If on any trading day S&P500 is -ve >3% then buy the index etf. Have done a rudimentary back test during bear markets of 2000, 2008 and 2020..seems to work..
Great research, I love how you highlight the power of dollar cost averaging & how difficult it is to actually time the markets.
Good point, statistically speaking yes .. double your investments in dips... Managing the cash flow is where the challenge is.. if you had planned an investment of $100K , chances are you might have used most of it during the bull phase or bought at near all time highs!! And now with dips, you don't have any cash left to invest ...
If you are really highly risk taking person , take a personal loan of double your invested money and invest it during dips.. not really a sound advise.
So the best strategy is to keep investing a fixed amount regularly and maintain it.. immaterial of the market direction ... Just like the Average Andy in this article.. always the best strategy for retail investors . Fixed amount every month.
This analysis assumes that the double-down money comes from thin air. If you’re going to invest double in the dip, you needed to NOT invest the equivalent dollars in the initial stages.
I'd love a follow-up article on cash management strategy comparisons - it could use the buy the dip example referenced "When the market goes below 10% of the previous all-time high (let’s call this the threshold)..." and investing double, but give reference percentages to invest of available cash.
It could compare 1) that vs 2) always being all-in vs 3) holding cash until an even higher cut-off. I tend to have the problem of frequently being all-in, and can't employ a doubling down strategy (without leverage or selling). Thank you for great content!
Wouldn't it make sense for all strategies to have the same total amount invested?
The "Hold" strategy should invest all the savings from the previous 'True' drawdown months once the drawdown reverses back to 'False'.
The "Stay" strategy should actually invest $137/mo. to reach the same invested total of the "Double" strategy.
this is simple and helpful, Thank you
Thank you for another interesting article. Something I've been wondering, but is rarely, if ever discussed: simply opting out of the stock market. Could there be a useful strategy to fully switch back and forth between the stock market and something basic, like a high-interest savings account?
For example, when the S&P 500 drops a few percent from a previous high or dips below a 10-month moving average - or whatever turns out to be the most optimal indication of a dip - the investor might sell their portfolio and move it all to short-term bonds or a savings account with a small, but positive, return and continues to contribute.
When the S&P increases a few percent from the low or rises above a short-term moving average - again, whatever proves to be the most useful indicator - the investor moves their money back into the market.
Of course, this exposes the investor to the first part of the dip and they miss out on the first part of the recovery, so this would require careful choice of the criteria for taking action - and the criteria may not be symmetrical. Still, ignoring tax implications, is there a viable way to simply opt out of the worst of the market's fluctuations?
Of course, no one knows Is the current market close to bottom OR the bottom in still 40% more to go!
Also, not clear in the above graphs: what kind of dips they bought or double down?
"During the last three major drawdowns, semiconductors, tech, and financial stocks were the worst affected. On the other hand, consumer staples, healthcare, and telecom have seen a drawdown much below what the market sees on average. "
Doesn't that mean tech etc are the ones you *should* buy into, rather than consumer staples etc? Not sure I get the conclusion.