Is waiting for a dip the best investment strategy? - I analyzed last 3 decades of stock market returns to determine if it makes sense to time the market! Here are the results!

Is waiting for a dip the best investment strategy? - I analyzed last 3 decades of stock market returns to determine if it makes sense to time the market! Here are the results!


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TLDR; ~10% of the time, it works 100% of the time.


The answer I came for.


SEX PANTHER.....They've done studies you know. Sixty percent of the time it works every time.


Yall realize that we've been in a bull market for the last 30 years so there's a huge bias in the data selection. Fun fact. GE is the only company left in the original DOW, so bear markets so happen.


Technically we've only been in a bull market since 08...so yeah....wtf is even your point...I fully understand bear markets happen....it doesn't change the fact that this is a shit post. It's been studied time and time again as OP alludes to that it is virtually impossible to time the true bottom of the market, a study that uses true market bottoms as entry points is idiotic because virtually no one can do that... this is a lot of words to poorly explain that consistent investing over time and staying in the market is the best strategy.


Before you parrot a narrative understand the assumptions and presuppositions in the methodology. Those backtest go back 70 years ie since the Fed was created. Markets go up because of the Fed. A thorough methodology would backtest to the 1700s but they cant because of insufficient records. But you could apply the same methodology to venezula or weimar germany to see that buy and hold does not always go up forever. The data is there to show this.


We've been in a bull market for 30 years lol wtf guess you forgot about 08?


Those comparisons are dumb af because they're not the world's reserve currency


I'm not parroting anything....I'm stating a known fact becasue well...its a known fucking fact, I'll put my credentials up against yours any day my friend. I know plenty about the markets and how they work it's my job to know.


Yes 😂


Here's the main issue I see with this data, what is the lost returns from waiting for the crash to happen. Meaning, how much money was NOT gained because of waiting for a crash? If the crash is 10 days away, it is a no-brainer to wait for the crash. But what if the crash is 365 days away? What if it is 1000 days away? What if it is 5 years away? At what point does it not make sense to wait for a crash (assuming you actually knew when the crash was going to happen)?


I know a lot of people that waited for 10 years for "the crash" to happen and most of them missed it because they didn't think it crashed hard enough to put money in...


This was my father-in-law. For at least five years, he’s had a big pile of cash waiting for a market crash. When March of 2020 happened and the markets dropped ~35%, he didn’t buy in AND he sold off what he already had in the market! He sold at almost the exact low. What kills me even more is that we’re a year and a half past that, he’s seen the enormous amount of growth since then, and he still hasn’t put anything back into the market. He just took that enormous loss and now he’s waiting for a crash again.


and he won't get invested if it doesn't look as bad {edit-or FAR WORSE} as{than} 2020. and if it does he misses the bottom by a lot.


Yeah, I think he’s just never going to do anything with that money, which makes me sad for him.


Haha he hates money


sorry for his loss but I’m cracking up here reading that lol


People keep saying this but it's completely different now. Stocks had P/es of 12 and dividend yields of 4% with 50% payout ratios 10 years ago. So talk of a crash was sort of silly. Now dividends are like 1.3% and P/Es are 40-60 for the second time ever. How, in your head, are people calling crashes in both of these very different circumstances the same?


I agree that the market is very different now, and does seem to be primed for a massive crash. I agree that PEs and valuations are high. I also think that you can always find information to back up the idea that a massive crash is coming. The point of the comment was that out of the people that I know that are trying to time the market, most probably wont do it properly and will have missed out on years worth of growth. I'm also pretty sure that the rise of index investing has inflated the Shiller PE metric and we may be in a new normal because of it. As for dividends, a lot of companies have been doing share buybacks instead of dividend payouts because its more tax efficient for their shareholders. It also keeps them from having to slash the dividend later if they go through a rough year.


I think systemic risk can be seen in the overnight repo rate and the DOLLAR index. Short-term Treasury yield


What I have found out is waiting always cost you more in the long term. I was testing your average Joe that gets paid every other Friday and tried to determine if I should just buy when I get paid or try to time the market and buy at the two week low. The most obvious problem is nobody knows when or at what price the two week low is, so the best thing you can do is set a limit order for $X below the pay day price for the next two weeks. Well, after crunching the numbers, the few times that you were able to "buy the dip" does not even come close to the number of times that your order is never filled, and you wind up buying at a much higher price. This turns out to be true for $X as small as just a few cents per share. The rush of getting something at the dip even once completely negates the logical approach of just buying when you can. We like to feel like we're in control and there is no excitement in DCA a few indices for the next 20 years.


>At what point does it not make sense to wait for a crash (assuming you actually knew when the crash was going to happen)? Its not about a crash but how long the market will take to get ABOVE the current days value and never go below that again. That last part is the key, there can be several crashes and rebounds but if some future crash goes lower than all those, you would be better off investing on that lower one instead.


This is not true. Dividends make up a large portion of the return of any broad market ETF. For this reason, looking at a graph of price over time is misleading. For example, in 2020 there were points during February and September where the price of VTI was equal. You'd be much better off investing in this February date compared to the September one because of the dividends earned in this 7 month period. When the markets take longer to recover, like from 2007 to 2012, the cost of investing at the 2nd date is much higher.


Of course, you need to take a chart of the total returns not just the price. All the money you had invested at the top of the market in 2000 you could have sold for cash and held until 2011 when you reinvested during a few month period from August-Oct and you would have more money than if you held the entire time.


I looked at an S&P 500 return calculator, and your claim is more accurate than I thought. From September 2000 to September 2011, annualized return is -2% without dividend reinvestment, and -.2% with dividend reinvestment. So if you can do better than a literal negative return and you could predict market peak and market bottom over an 11 year period, you're better off waiting. You are right. But because of the volatility during this time period, many contributions between those 2 dates would've risen substantially. That is to say, a lump sum at September 2000 would lose to waiting, but if you invest every year, you should still go ahead with it. And that's of course all assuming you even know precisely the market peak and bottom. Out of curiosity, do you realize this strategy of market timing, or is this a theoretical conversation?


Theoretical which was the same as many scenarios in the OP.


Agreed... If you are good a calling bottoms, then would you not be decent at calling highs? Meaning, you are able to maximize your cash position prior to the bottom of a crash and therefor extremely well prepared to take advantage of your bottom call. So, adding to your thought...how much (additionally) was not gained by not getting out at the high or near-high prior to the landside? "I ***mist*** the top/bottom" is what I sat every time I look into my cloudy crystal ball...


No one is "good at calling a bottom" they are fooled by randomness.


I disagree. I am great at calling the bottom.....a few weeks **after** it has happened.


Well yes. I was asking more from the perspective of someone in 100% cash who knows that a crash is near and so got out early. At what point is it "too early" to get out of the market into cash? This would be someone with a good sense of timing but not predictive powers to the exact day. I still agree with your point.


Thanks for clarifying your point of view. Humor me here....Thinking of some scenarios: **Thesis:** If the crash goes down far enough, then maybe the point of "too early" is balanced out / net zero? **Scenario 1:** Investor gets out at +15, but market goes to +20 before crashing down to -20. Investor gets in at -20...missed out on +5 (got out too early). Market goes back to +20 yielding the investor +40 of gains (but could have had +45 if he/she did not get out too early). **Scenario 2:** If the crash would have gone down to -25....Investor gets in at -25 and the market goes back to +20 yielding the investor +45 (matching what he/she could have earned if he/she did not get out too early in scenario 1)....BUT, investor could have yielded +50 in scenario 2 if he/she did not get out too early. **Conclusion:** *Getting out early at* ***ANY point*** *on the way up is too early.* Isn't the entire mystery of the market figuring out when to get in and out at the most opportune time? The challenge of solving this mystery is what lures us in! I would greatly admire the person who has the discipline to remain at 100% cash, sit on the sidelines for who knows how long, and jump in only during the crash (maybe lucky enough to catch the bottom). Then be good enough to get out at or near a high...and do it again a few years later at the next crash.


Isn't the fundamental numbers problem that crashes happen too seldom or rather too many years the market gains steady until a big and sharp crash. You never see a slow gradual decline (except Japan!). This means that only getting in on crashes blinds you to when is the right time to get out right before a next crash. Or you get out too early and lose major gains. It is a very interesting subject when you are not doing the market timing yourself.


I think systemic risk can be seen in the overnight repo rate and the DOLLAR index. Short-term Treasury yield


Ha ha


I think the main issue (and OP admits this much) is that this calculation assumes that the investments were made at the lowest point of the crash or at the lowest point of the year. Nobody can predict these points. The math probably would be very different when you wait for the crash but still invest either too early or too late.


This is sort of like saying playing the lottery is the greatest investment as long as you pick winning numbers. Picking winning numbers is almost as hard as timing the bottom of a dip Or its like saying "Index investing vs individual stocks investing who wins? Well if you invest in the top 5 performing stocks of the S&P500 every year you will blow the index away"


also people forget that timing the bottom of the dip not only requires luck but also a TON of time and dedication. I dont have time/energy/knowledge for that!


That's the biggest draw to index investing for me, it takes next to no time to do and the returns are good enough.


Also you can leverage it through triple leveraged ETFs or ATM calls (more leverage than ITM calls).


Yes and go Bankrupt on a 33% market fall while on an x3 leveraged index


I have a theory that all these people touting leveraged ETFs are just the people that haven't gotten burned yet. It's an amazing strategy until it isn't, and it would go really south really fast.


Do some research on Hedgefundie's Excellent Adventure. Its not pure leveraged but its an interesting concept that some folks are following.


I mean sure but it's more of a calculated risk especially depending on the underlying it's leveraging. Like the nasdaq will probably do well if covid gets worse or better because it's tech based wheras the S&P probably won't do well if covid gets worse.


yeah used correctly a little leverage is great, its literally a conclusion you can draw from the OPs post. If you're young and can afford the risk and understand when to deleverage, the risk is completely worth it. the issue is people see just how high the leverage goes and get blown out in a <.25% move lol, if you're willing to lose a little more if you're wrong and dont try to time the move exactly... chances are it will pay off


That's why I love options because you can use spreads to specifically tailor your risk to your specific needs.


There is no period in TQQQs existence where it didn't outperform qqq over a year


People REALLY overstate the impact of decay in leveraged instruments. A leveraged index ETF I think is a golden opportunity.


Yes because it's very common for markets to fall 33%


That's not how leveraged funds work


Also lot of money to invest on wrong timed crash, even Michael burry lost a lot before he made his millions


What if you hedge the bottom? Bonk. So during the march collapse I would buy in like maybe 50%, wait for the stock to drop more, throw another 20% wait for it to drop even further throw another 20% and wait. These were consistent dividend stocks so I was investing for the increased yearly dividend yield on whatever I invested in. If the stock drops under the price invested, it just becomes even more attractive.


Worst thing that happened to me since 2020 (investing wise) is that I called the bottom of the market to the day. I didn't expect that it would be the bottom - but I wasn't going to take the risk that it wasn't. Turns out it was. Now I feel like a genius.


Well thats another thing, to time the bottom you have to buy back in when fear and uncertainty is at its maxim. Its not like the bottom hits then the clouds start to part and there is a signal for sunny days ahead. The bottom is when everyone is the most pessimistic and fearful, saying its going to go down more. Pretty hard to go all in when everyone is saying things are going to just keep getting worse


seriously haha I remember that was right around the end of march and the world was at full cataclysmic COVID apocalypse mode when everything was locking down and nobody knew what the fuck was happening. all borders had closed for the first time in...ever? and it was just total chaos. you would have to be insane to decide to throw your cash in right then, but damn it would have been a good move.


Yep, look at this sub from around march 20 2020 to march 31st 2020. It was total chaos , people were saying "this times different", "Capitalism may not even survive" , "This is going to be worse than the great depression". The entire world economy was shutting down, economist was like "Umm we never even wondered if we could shut down the world economy for 2 months....we have no clue what will happen" and that is when you would have had to go all in.....most people cannot do that.


I've done it twice (2020, 2008), my only issue is I only invested a very small percentage because you know - scared...


And therein lies the problem. Without hindsight or a crystal ball it’s tough to have enough conviction in the moment to make the optimal play. So, invest early and invest often and take comfort in knowing that, over the long run, historical evidence supports these as the truly correct plays.


I called the top and the bottom in 2020 ( feb and april). Told my dad and he said “nah ignore it, stay in do nothing”. He is right overall, but i was right that time and it haunts me.


Getting it right once is a hell of a drug, haha


Any technical indicators we can use to time the bottom, or should we just invest when the market rebounds slightly


When the clock strikes midnight on a full moon, you see the classic cock and balls pattern, jupiter is in retrograde and rsi is at the exact digits of pi


You missed the point. I'm telling you it was largely dumb fucking luck.


Yeah, I'd like to see what the numbers look like if you only buy 1-2 days after the dip, because that's most likely what would happen if you tried to buy the dip every time and were anywhere close to be accurate.


Seriously. These type of analyses are posted to this subreddit every so often and they always miss this. I rolled my eyes when I saw this posted yet again.


Yeah.. of the scenarios OP pointed out, only two investment strategies listed are controllable and available to every investor. "Invested when markets were lowest every year" "Invested at a random date every year" And the second option is BS because the reality is that a random date will have random results. As long as a mf is ok with accepting the risk, I am 100% kosher with the same mf investing however they want. If the same person is trying to justify investments with past performance on some sort of imaginary high/low peak... that is a garbage take.


It's slightly different. This is like saying playing the lottery is the greatest investment ever if you just picked [winning lotto numbers from last week] a week after the winning numbers have been announced.




Even easier to understand is to pretend this occurs over the course of a day instead of over a year. Of course your holdings will be most valuable at the end of the day if you buy it when it's cheapest that day.


What were the triggers to "invest only in a market crash"? How long were the crash, what determines when you stopped investing as it is no longer a crash? Did you factor in the lost potential gains from waiting for a crash at an all cash position? This doesn't match the similar analysis someone else had done a few months back. I feel like it needs more context. EDIT: https://www.reddit.com/r/financialindependence/comments/c02ml4/timing_the_market_the_absolute_worst_vs_absolute/ here is the better similar post.


He lists his crashes in the first footnote. That model assumes the investor maintains only cash savings between crashes, and is able to predict the absolute bottom. In his own conclusions he makes very clear this is not a realistic investment strategy, as the absolute bottom is only known in hindsight.


His model is completely and utterly fucked because he used data that is literally just the closing price of the S&P and ignores dividends. The tip-off was the 300% returns over 3 decades, that’s not even close to what 3 decades returned in nominal terms. The analysis is utterly useless, it means nothing because it’s missing a chunk of returns and therefore is biased towards waiting for crashes. Edit: they have since responded elsewhere talking about the adjusted returns. The numbers still don’t match up - and I don’t think using [adjusted closing prices](https://money.stackexchange.com/questions/129454/is-using-adjusted-close-prices-the-same-as-calculating-the-return-when-dividends) accurately reflects total returns with dividend reinvestment


I think you missed that he was putting in new money each year. So it isn't all invested for the whole period. Using the adjusted close is correct for total return. What people are missing is the $10k invested on 1993, $10k+5% invested in 1994, then that amount + another 5% in 1995, etc. obviously this would have different returns than one lump sum invested in 1993. Then his return calculation is not IRR or CAGR, but simply total invested vs final balance.


Right I got that down later in the thread. It’s a super weird way to represent gains since they’re not time weighted or money weighted at all. That’s why I was cornfused


I think it's a fair way to compare the different strategies under consideration. After all, since you're not comparing to other investments, time is not really important and you just care about the final amount.


It’s kind of a false premise though, since people typically get money in increments over time, and have to decide at that point in time where they should invest that money, and that decision is really based on the expected future returns over time for that cash. For example, in his calculations detailed further down in this thread, instead of bumping up contributions by 5% per year, he uses 0.407% per month, which is unrealistic given that people typically receive yearly raises, not monthly. But a TWRR or MWRR would help to counteract that


https://www.reddit.com/r/financialindependence/comments/c02ml4/timing_the_market_the_absolute_worst_vs_absolute/ Here's the same analysis done by another user, they also consider that the "cash" waiting for crashed is earning 3% (!!!!) Interest and they still come very short of the slow and steady investor.


His theoretical investor has great foresight and invests all of that years money on the lowest day of the year. That is where it diverges from other studies that use some objectively repeatable algorithm to decide when and how much to invest.


Their data is just the closing price of the S&P. This is a flawed analysis on the most basic level, since it completely ignores dividends. I was confused for about 15 seconds as well, until I realized the theoretical returns (~300% over the past 3 decades) pointed to the fact that dividends were missing.


Why don't you read the post? It clearly states adjusted close -- why accounts for dividends and splits?


Adjusted for what? 300% returns are not even close to true over the last 30 years “Adjusted closing price” doesn’t allow you to compute total returns, an “adjusted” close price subtracts the dividend from the close price Edit: oh I think I see what you’re doing. You’re not calculating some sort of TWRR or CAGR you are taking the total investment and dividing the ending portfolio balance by it, which under weights newer contributions, but makes sense from a snapshot-in-Time perspective


Hey OP, I really appreciate the post and your methodology. The people on this forum are rejecting your analysis because they have heard "time in the market beats timing the market" way too many times and cannot wrap their head around any analysis that proves otherwise. You clearly stated that predicting the bottom of crashes are impossible so while theoretically you would make the most money, realistically this strategy is not viable. For the people who are wondering why this analysis does not line up with what you've read previously, notice that OP's list of crashes contains more crashes than what other analysis used. The more periods of market dips you include, the better the "buy the dip" strategy performs.


It’s because it’s useless as it relies upon impossible to know factors like when the dip was at its lowest point. It needs some kind of ruleset that tries to find a low point using only the information that would be available at the time (I.e. current value vs past, momentum etc)


This is a hypothetical. No hypotheticals are meant to be realistic. Nobody said the analysis of the "worst market timer" is useless even though predicting the top of the market is just as difficult as predicting the bottom. As long as it aligns with your confirmation bias, it's useful.


This is interesting but a couple of thoughts. 1, try a different horizon. You picked a 30 year period that ends with the greatest bull market in the history of the S&P. Instead of 1993-2021, try 1983 - 2011. 2, as far as "timing the bottom" a strategy a lot of people use would be to buy the S&P after it's fallen more than 10%, and come up 5% from that floor. (so if the s&P fell from $3000 to $2500, you would buy at $2625. It does appear from your data that timing the market is in fact the most efficient. Even though it is hard, there are strategies that can help identify the floor.


Thanks for posting this, your response should be further up. If someone wants to examine "timing the market", a few specific rational strategies should be tested, rather than some impossible assumed scenario of always getting the highest or lowest price in a year.


My go-to strategy is to find a shiny stock, wait until payday, buy stock, sleep, cry, then see a return.


Pretty sure I own the patent on this one so you can Venmo me my royalties now


I agree with the other user that this simply does not match existing analyses on this subject. Normally waiting for a crash doesn’t outperform, because even if you time the crash perfectly, you missed out on years of gains and dividends. Did you account for dividend reinvestment? Edit: it doesn’t appear that you did. Dude you can’t just use the S&P close price. You’re missing a gigantic piece of returns — dividends. That changes the whole picture.


It doesn't match because this analysis still invests all the money each year. Different than waiting for a downturn like most of them. It's most similar to this study: https://www.albertbridgecapital.com/post/the-futility-of-market-timing


This should be the top comment


Not only that, but what about making money by trading in and out of a stock that moves in a certain range during the time you are waiting for the crash? ...that is also unaccounted for


People always forget dividends.


It's adjusted closing price. Not the simple closing price https://www.investopedia.com/terms/a/adjusted_closing_price.asp


$1,000 invested in 1993 is $16,100 now according to multiple separate portfolio simulators. I am not sure what your analysis consisted of, but perhaps you made a math error? Or maybe I’m misunderstanding how you are calculating a return percentage. [This](https://money.stackexchange.com/questions/129454/is-using-adjusted-close-prices-the-same-as-calculating-the-return-when-dividends) tells me I’m not the only person who is saying “adjusted close price” isn’t reconciling with total returns. There *is* an S&P total returns index btw. The “adjusted price” involves subtracting a dividend from the share price according to the page you sent me. Not sure how that accounts for dividend reinvestment.


\> The most important insight is that it’s virtually impossible to lose money over the long term in the market Unfortunately, **your most important insight is on shaky ground** since you heavily biased your analysis by looking at the US stock market, which is the market with the best long run returns over the past \~100 years in the world. In other words, you have very significant selection and survival bias in your sample of one. If you indeed were the unluckiest person around, you would have invested in the Japanese market before World War II. Or invested in the Argentinian market during the high inflation 1970-1980s. Many markets have essentially gone to zero. That not merely losing some money. That's losing ALL your money. If you look across all available countries, you would get median real return of about 0.8% versus 4.3% for the US (the numbers are from Jorion/Goetzmann so somewhat dated, but the main point still stands, namely the US is an extreme outlier). The most plausible explanation is that the US was the beneficiary of lots of good fortune during the past 100 years. If you think well, the US is a great country. We have good incentives and a favorable legal/market environment for big corporations. We have Silicon Valley and technological innovation. If all that is true (and it very well may be), then the market will incorporate all this information and will push the prices of US stocks up; hence expected returns in the future should be low. Indeed as an investor, you would be less willing to pay up for riskier emerging market stock indices with bad fundamentals and shaky institutions. Since we are willing to pay less, the expected future returns should be higher in these places. So the only way you can continue to expect the same sort of relative outperformance for the US versus something closer to the average across all countries is that you expect to get positive surprises long into the future. But it doesn't make sense to expect to be continuously surprised since if everyone really believed it, the prices would adjust today (upwards), making future returns low. So bottom line, looking only at the US market gives a highly biased (i.e. overly favourable) view about stock returns. You live inside the goldfish bowl so you might find it difficult to see the bias. (In lots of other countries, there isn't the same sort of "equities culture" as there is in the US.) The takeaway is that your odds of losing some of your money even over the long haul is higher than indicated from analyzing only the US data.


Despite the fact what you said is seemingly logical and correct, the US isn't going anywhere any time soon, especially without a huge worldwide disaster. Even in that case, the US has the means to pick up way faster than most countries. We have a pretty good system compared to most countries, as flawed as it is.


>the US isn't going anywhere any time soon I agree and my analysis doesn't predict or rely on this happening. The more likely outcome is that US stock market returns will end up be being closer to the cross-sectional median across countries. Don't try to twist what I wrote by suggesting that the US will disappear or otherwise go from the extreme right tail to the extreme left tail!


I'm glad the person who made the comment called you out on your invalid attempt at reductio ad absurdum. I was going to note the same thing!


You only make money when you sell. If you happen to be in need of money during a market crash, you are fucked. Till then all is well.


There's a new post everyday about timing the market. I really doubt you can do it. Good luck.


To be fair, despite what other objections you may have to the analysis, OP never said that timing the market was viable. I think the statement: >If you think you are in the select few who have the skills to identify a crash and the temperament to see the crash through to invest at the very bottom, you will make an absolute killing in the market! For the rest of us, continuous investment regardless of the market trends seems to be the better choice. ...is misleading, because only must you THINK you are the select few, you must ACTUALLY be the select few, the statistical outliers that are even fewer, since they need to be right not just once, but often. There is acknowledgement that most people can't do that, but the "this requires multiple instances of improbable statistical events" factor is underplayed. I think OP understood that to be the case, but could be wrong, and it isn't stressed at all like it should be. I think suggesting that it's possible at all is rather unreasonable. IMHO.


buy the dip is very luck based. i bought 500 shares of MSFT back in 2008 when the housing bubble is poping and everything is crashing for $20 per share. i never touch it and today one share of MSFT is $300. who knew? MSFT wasn't bad back in 2008 during Ballmer era. its just not exciting enough 'cause MSFT is raking in more money by selling software to enterprises and maintain their lead in Desktop but totally missed the boat on mobile phone and rise of Linux on server. we all know what MSFT is today by changing lane and pivot to Cloud computing. if you look at MSFT chart, year over year it keep climbing. i believe the right strategy is to buy at a steady pace. if i have keep buying MSFT stock at a steady pace since 2008. i would have retired young and rich(?). anyway, my two cents.


I think you (and everyone younger than 60) are looking at too short of a timespan. It's important to remember that in the last 100 years there were at least 5 different periods of 7 years or more, and I think 3 of 13 years or more, that the return on the market was 0 if you invested at the top. 2000-2012 is the most recent, but if you analyzed 1963-93, I think it would be much more favorable to DCAing, because of years of sideways trading. I see no reason that the next 30 years will be more like the last 30 than the 30 before that, or, god help us, the 30 before that.


TLDR summary: Buy the index and keep buying when you want or when the market is down or when you really think you shouldn't.


Well, you’re in luck! Monday September 20th at market close China is supposed to start a chain reaction that crashes all markets Tuesday morning. So now when to jump back in is the real question. Look up Evergrande


How does it help to look at the level of the market at its lowest point in a year when there’s no way to know on any given day if that’s the lowest point or not? The study that I wish someone would do and report on would use a metric that you can observe in real time that could guide your investments: “What would your long-term results be if you only invested on days that dropped X percent or after a week that dropped Y percent?” The metric to trigger the investment or the trade needs to be something that can be seen in real time, not with hindsight.


You should not go all in on any dip.


not a very useful post since it’s all theoretical, would be interesting if you would do a fixed strategy if market dropped more than 20% in one month and then sell 1 year later or something


It’s also not useful because they ignored dividends, or at least it appears that way to me — they used the “adjusted closing price”…. But that just subtracts dividend payments from closing price; it doesn’t simulate reinvesting that dividend ..


This is great in hindsight but going forward, how do you know when a dip is done dipping?


You just watch the line and when it stops going down you buy and when it goes up you sell. I saw it on TicTok


I hate these analyses where they say "if you invested at the lowest.." or "at the bottom of this crash", etc. No doubt if you know the exact bottom and invest it's gunna be the best. I'd like to see a study looking at people who ***tried their best*** to time the bottom of the market, and compare those results against others.


If there's a dip, it won't be comparable to the clearance liquidation sales prices during March- May 2020. So if there's a 5% plus dip, buy quality, not the cheap stuff.


The Covid drop was a gift to those that could see it was oversold and quite the opportunity. You don't think we could experience a 10-20% drop sometime in the next year?


Hard to say, unless Corona Virus shutdowns come back and stagflation becomes a problem, doubt that a huge stock price discount would reoccur like March- May 2020.


If you dca, then you time the dips as you buy those also


So accumulate some cash and just dca into dips forever. A blended strategy.


I love how people make fun of buying on the dip. But it is pretty simple to buy when stocks are down. I mean I thought buying back in March 2020 was a no brainer. September is usually a down month, buy the dip. Buy now while the stocks are lower. Buy low, sell high? Seems like common sense. Just don't buy crap that's a falling knife. But you can usually sniff those out. If you buy indexes, even if they fall, historically they eventually rise again.


Down to what tho? Drops 20% starts to rebound, drops 20% more. Drops 20% starts to rebound then skyrockets. This can take 5 days, 5 weeks, 5 months. It doesn’t happen in 1 day. How do you time the bottom? Obviously everyone always tries to buy low and sell high but everyone is pretty much guessing at when those points are.


Nice, now how do I know when the market is at its low point for the year?


So all you have to do is know when the market is the lowest it's going to be for the year, or to identify the bottom of a crash?


Flawed study because your definition of "market crash" does not have a clear criteria. I'd like to see a study where you apply buying only to a specific criteria of a crash (IE S&P500 down 20% or more from peak), and specific criteria to buy in.


Some of the best advice I’ve gotten is: You will never catch the absolute top or bottom, so trade accordingly.


I don’t want to diminish your work OP, but hasn’t this exact post been made a ridiculous number of times this year alone? “Time in the market beats timing the market” is literally a cliche now, and I’ve seen BuzzFeed, Cracked, and a litany of ‘tubers making the same claims and analysis. I really only was interested in the fact that the best and worst days are an average of 14 days apart. Would you be able/willing to delve more into that? Some kind of statistical analysis that “~4 days after a drop greater than 2% in the overall market provides the greatest likelihood of X% gains” would be much more useful. Saying to save money because you might need it is not particularly helpful. Saying to save 5% of each paycheck in the year leading up to a planned child is actually actionable advice.


Time in the market is necessary for you to be able to appropriately time the market. If you're waiting for the market to crash, but want to play in the meantime, do it. But do it with about 1%-10% of what you're really trying to put in. If you want to put in $10k-$100k in the next 10 years. Start with $100-$1k. Double down every time your portfolio takes a decent dip (about 5% for low volatility investing to about 15%-20% for high volatility trading) and it'll grow exponentially. Specifically for you, since it seems this is a conundrum you're actually currently battling with, if you're sitting there contemplating putting $X into the market, devide it by at least 10 (I'd suggest 20 in case you do suck at picking stocks/timing) and say fuck it. And WHEN you hit the point where you're sitting there thinking "this stock market shit isn't for me" grow some balls and double down. People don't want you to know this, but the goal of the stock market is to kick yourself for not putting enough in. This means you're doing it right. But don't let it get to your head or next time you'll put in too much and won't have enough to keep doubling down when times are tough. This is when you'll see your investments go -30% or worse.


Buy house. Invest whatever after that. You’ll be straight.


To all the people saying you can't time the market.... Actually a plethora of studies show that the general public do have strong timing skill. The only problem is that they have strong **negative timing skill**. Peter Lynch mentions in his books that while his funds outperformed the US market by huge margins the average dollar in his fund underperformed. The mug punters achieved this by buying at the top and selling at the bottom. People do not invest at *random* times. They invest at the height of manias. Any investment methodology needs to deal with this reality. Thus dollar cost averaging, and drip feeding your money into the market, rather than pushing your cash into the pot when it "feels right", is the winning move for most people.


The hardest part with timing is ofc... how low will OTHER people be stupid enough to sell at? There is no magic number down and then it goes up. So lets say you wait for -50%, it reaches -42% then goes to -43%, -40%, -35%, -40%, -34%, -45%, -33%... this time it'll go to -50% right?? NOPE -25%, -20%, -10% and now you are back at 0% down... What do you do wait for the next crash? Makes little sense.


This type of analysis fails because it supposes you know the bottom of the dips and crashes. And also because of human behaviour. The typical investor posting on reddit does this: 1. Does not invest when markets are going up because they're about to crash. 2. FOMO eventually kicks in and investor grudgingly puts his money in the market. 3. Not long after, there's a major correction. Investor sells then waits for bottom before putting new money because it will keep crashing. 4. There's an upswing and we're out of the dip but investor won't buy because markets are shaky and it will crash again. 5. Repeat from 1.


Most of these analyses that I've seen are underdone in certain respects: * They treat the strategy as all-or-nothing, i.e. one must wait for the next dip even under complete macroeconomic counter-indications. But since all known methods of hedging have some sort of inefficiency or burn rate under average conditions, this is unrealistic. You don't see most prominent crash-exploiters like Grantham and Burry placing expensive bets against the market without reason during halcyon bull runs, because it would be counter-productive. (I'm aware of constant-hedge strategies to capture completely unpredictable black swans, but those are obviously much different from a cash-position strategy which waits for dips.) * These analyses tend not to have a realistic strategy for buying during dips or crashes so that one can evaluate how it would actually work. (I realize this is more complicated, but still the conclusions depend heavily on a realistic model.) Instead, they tend to rely on omnipotent hindsight: *Here's how you'd have fared if you bought in perfectly at the bottom; here's if you'd bought exactly 50% of the way down; etc.* Here's what I recommend for a much better, and more fun to program :D , analysis: * Scour the web for influential bear-market indicators, as well as ones which are less well known but might be interesting or helpful to your target audience. Program your analysis to use a selectable set of these, or run all of them in various combinations to find the best one, and present the results. That is, !!!!*Apply your simulated dip-buying strategy only when the simulated set of bear-market prediction criteria apply. !!!!*One of the bear-market criteria you simulate can be "all the time"/permanent-on, i.e. the way you did it this time, which can be used for useful comparison to the others. * Choose different dip-buying strategies and model each of those against the data set too. These can be simple and static (buy X1% on a Y1% reduction within Z timeframe, X2% more on a Y2% further reduction, etc.), based on flexible market criteria, or a combination of both. In order to do that sort of more realistic model, you will need to include more than just broad-market price points in your data set to support some of the bear-market indicators. However, the results will be much more valuable. It's a failure to do such a proper analysis that the much-repeated Vanguard buy-and-hold "white paper" (i.e. advertisement whitepaper on their website) is so childishly absurd. One doesn't prove or disprove the worth of a complicated strategy with an overly simple analysis. None of this is meant to be anything but constructive discussion. Thank you for posting. **ETA: If you want to collaborate on this, I'd be up for it.**


> It's a failure to do such a proper analysis that the much-repeated Vanguard buy-and-hold "white paper" (i.e. advertisement whitepaper on their website) is so childishly absurd. Glad I'm not the only one that identifies those as advertising.


This is great work but a waste of time. The case for BTFD is more nuanced. It has nothing to do with the entire market. You're looking at the broad market. No one is trying to time the S&P500 and buy a ton of vanguard index fund on the next crash. I don't mess around with my retirement accounts and just DCA it every week with my paycheck. When it comes to my taxable brokerage accounts though, excess cash goes here. There are always pockets of opportunity within sectors, individual companies, after earnings, analyst downgrades, news events causing a great company's shareprice to tank 10%+ etc. You will always find them if you wait a bit. Some of my best buys have been BTFD buys because the shareprice eventually recovers after the initial panic wears off and you got the stock at a descent margin of safety. I have stocks in my portfolio and a watchlist of selected stocks diveed up based on sectors, market cap etc and if I see a company acting up, I'll see what the reason is and evaluate whether it's a buying opportunity. Or if a sector has taken a good beating, or an analyst downgrade leading to an echo chamber of downgrades tanking the stock. I will try to find a quality company within the watchlist and see if it's worth buying in or scaling in. Like I said before, some of my best individual stock buys over the years have been BTFD buys. You can be in the game and have some cash on the sidelines or even raise cash to buy a beaten up stock.


If you take one thing from this post it’s this: time in the market beats timing the market. EDIT: here’s what I do: but consistently every 2 weeks taking a portion of my pay check. If I see a significant drop I load up more


A few thoughts: Why did you only look at 3 decades of data? Plenty of people have done this analysis and used way more data. You've basically copied other folks but used less data to draw therefore less useful conclusions. What if a hypothetical investor doesn't see a crash for 10 years and has virtually zero returns to show for it over those 10 years. You're suggesting it's in their best interest to miss out on potentially huge gains to put all their eggs into one basket (the recovery after the next crash, and who knows when that might be). Personally I'm not a fan of your post.


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I see two obvious fallacies in this post. First it talks about "the market" but uses data only from one of the highest performing markets over the time studied (the US). Try rerunning this analysis on Japan for example - currently more than 50% down from 1989. Seriously you can't cherry pick the best performing markets and pretend that it's representative. inb4 I have great faith in America. Well good luck betting the farm on a country that put up Donald Trump and Joe Biden as your alternatives to lead the country. And bear in mind 120 years ago the US was basically a corrupt third world country that had just been through a ruinous civil war. Which country meeting that description do you think will outperform in the next 120 years? Second, people do not invest at "random times". I have been investing for 40 years and I can tell you for a fact that people are most interested in investing in the stock market "for the long term" at or near the peaks of bubbles. Given this, drip feeding your money into a diversified set of assets over a few years, while it feels pedestrian and liable to miss the boat, is actually a much less risky strategy. The likelihood that someone has decided "at random" to put a large sum into the market at this exact time is approximately zero. More likely it is more like the panicked calls I got from friends and relatives in late 1999 wanting to "get into the dot coms". Having said that I appreciate the effort that OP has put into the post. I would suggest that changing from SPY to a world index ETF would be a big improvement. And a comparison where the person invested only at the times when margin lending was at its peak (as an objective metric of mania) would also be worthwhile.


Today I learned the USA was a third world country during the boom of reconstruction......


Wow.. 360% returns.. I got the three times in the last two weeks in crypto. Imagine putting money in the stock market ponzi scheme


Boy, have I got news for you...


How about altering allocation based on cape?


Just because asset is in sale or dipped does doesn't mean it's a buy,not always. It could go side ways or dip even more for the longest of time. Sometimes riding the momentum, going with price trend velocity is way safer option than buying something after a huge decrease in value. Not a big fan of calling top or bottom , go with the flow as the say.


\>For e.g., even if you predicted the 2020 Coronavirus crash correctly, where would be your entry point? The market was down 15% by Mar 6th, another 10% by Mar 13th, and then another 10% by March 20th for a total of 35%. If you did not get in at the absolute bottom, you would have lost a considerable sum of your investment without actually getting any benefits from the previous run-up. ​ You don't have to be precise. Anywhere within 1-2 weeks of the absolute bottom would have brought amazing gains. At some point you notice a trend back up, that's the best sign you've hit bottom.




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I'll summarize it for you. No, timing the market (waiting a dip) is a fool's game. You're better off with recurring investments/DCA. It's like trying to step outside a thunderstorm and betting $x amount that a lightning bolt will strike you. The multiplier is high and attractive. But the odds of that happening? Not worth it. Vs: Betting that 5 bolts of lightning will strike in the entirety of the storm. Lower multiplier, higher chances. But at least you'll earn some money.




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What is the CAGR u are getting ?


So DCA is the least stressful way while still having the possibility of solid gains. Got it.


I trimmed today's dip and even the value of spy. Probably totally lucky.


Fantastic analysis. Would be very curious to see how a hybrid strategy of investing a fixed amount each month and investing slightly more during noticeable crashes performs. Nonetheless, shows how valuable a little patience and consistency are in the markets. Thanks for taking the time.


Excellent analysis & good read. Have you considered writing a blog or something?


What your analysis shows is that, unless one has an inerrant ability to discern market highs and lows, or a superior ability to choose stocks that will outperform the market (outside the purview of your study), the best thing an average investor can do is to invest at regular intervals. The second best thing s/he can do is to invest some time between the beginning and end of each year. This is especially true with a target date that is ten years or more out. With fewer than ten years to go, it's time to ease into more conservative, reliable income-producing investments, such as stable bond funds or real estate. I live in Reno and used to drive retirees to the casinos. They used their income left over after they pay all their monthly expenses on gambling, or gaming as some like to call it. You can use yours for charity or gifts to family or friends or whatever you want to do that requires money you have.


Thanks OP - your analysis is gold.


> it’s virtually impossible to lose money over the long term in the market [3] Great post! What if the last 30 years aren’t indicative of the next 30 though? https://en.wikipedia.org/wiki/Kondratiev_wave https://www.macrotrends.net/2324/sp-500-historical-chart-data What if we get that shitty part before then where the stock market did nothing? What strategies would be good there?


Dividend stocks my friend


Interesting, most trader style active investors would disagree with this analysis because you're only looking at: A. Market as a whole B. Only purchase and hold, rather than multiple buy sells (or many). C. Probably only considered SPY, there's a lot more to investing than just SPY, you know the entire bond market? Etc. It's just not what an active investor is typically doing with their positions.


Your "most important insight" is wrong... In my opinion its not as impossible as you think to lose money over the long term... It's just for the majority of us it's never happened. However speak to someone in Japan who invested in the 1990s and they'll have a much different view. Run the same calcs as above investing in the nikkei from 1993... or worse 1990... I can give you other examples in every asset class. If you are interested read some of the white papers on Trend Following or A Quantitative Approach to Tactical Asset Allocation to get another perspective.


Gotta be honest. This is utterly useless.


If. IF you timed the market horribly and bought in right before each of the biggest crashes in the past 30 years you're still up average 8% (SP500 I think was the index used). So. You can't spend all the time to try to beat the system and do all your research. OR. spend no time or effort. Dump it all in SP500 funds (I prefer VTSAX because it's close to SP500 but does have some ... A lot more flavor). I don't spend any time doing any research or math anymore. Because my math and effort showed that I could hunt and fight for timing and retire at 50 OR fuck about do fuck all and just dump it into SP500/VTSAX and retire at 50.5


But buying the peak everytime is just stupid, why not just DCA and just buy more when the market dips/crashes assuming you have enough money, having extra cash does help a lot in this regard, no wonder they say cash is king


Point being even if you had the worst luck trying to time the market you're still out on top. So don't bother trying to time it - I agree just DCA.


Waiting for a dip is not a strategy anymore than waiting to get a job is a plan.


Remind me tomorrow to read this when I'm sober






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I'm guessing 99% of people aren't going to know when the 'crash' is to invest...nerves of steel discipline...if its going down in Sep 2008, who's to say it wouldn't be an even better buy in Oct 2008


Just DCA and move on with your life


TLDR; No, just DCA.


Always try timing the market first until you get caught wrong footed then you spend time in the market


If we are talking a crash or dip on an individual stock, there needs to be some dd too. What was the reason for the dip? Is there a reason to think it was a larger concern? Like any investment, you still need to be intelligent. I don't buy the dip on something that significantly alters the company.


[Some what relevant to this.](https://twitter.com/DavidTaggart/status/1438647558620942339)


CNBC 12 days ago: do not try to time the market CNBC Yesterday: experts say to invest when there is a crash and you make 374% more than dollar cost averaging Me: sorry babe, strategy has changed our finances. Cancel my Tesla Y order. We are going to the moon for vacation hun.


It's nice to see this data. Since it's almost impossible to predict the bottoms and even harder to predict the tops I have backtested several strategies over the last 25 years. Stuff like getting out when the market is down 10 and getting back in when it's up 15 we're getting out when the markets down 20 and getting back in when it's up 15, getting out when it's below the 200 ma getting back in when it's above the 200ma and also on the 50 ma. I've even tried changing the fund mix from full equity to partial equity and back. I haven't really played around with Fibonacci cycles because I don't understand them that well, but it seems like a diversified portfolio even if you take the hit bounces back the best.


Tbh I'll use value averaging strategy when the market crashes, that way I buy more and more as the price drops harder


DCA all the way!


Of course it's always better to buy in lower but since no one can tell the future - just buy in NOW. In the long run it'll be better. You could be waiting for a dip that doesn't come.


Buy when fed buys and sell when they sell, easy money


Buy the dip on stocks you like, that is all..


Well, don't listen to this guy.


Best is clearly to always be invested but have either cash or margin at hand. It’s worth keeping 25% of your buying power at all times.


I am going to discover more about $ENRX. r they BSC-based? Or what?


In my opinion, waiting for the dip on momentum stocks in particular definitely gives you the best risk to reward ratio. However, I have been smoked a few times just catching a falling knife as a beginner. I would say these moves a best avoided if you don't have a lot of experience. Only when you are an established trader should you be capitalising on irrational sell offs, simply because a beginner will struggle to find the right entry on a dip... Just my thoughts though


I think it’s better to do a bottom-up approach. Source: www.stockmixology.com