Thought this article was brilliant: When Buying the Dip Doesn’t Work: An Analysis of the Dot-com Crash
The most notorious of these bear markets is, of course, the Great Depression. But another great (and more recent) example to study is the dot-com crash.
First off, if you bought at the top, you wouldn’t see a new high on your investment for 16.5 years. And if you held on, you got to experience a -83% drop along the way.
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Now, imagine you bought the dip! Maybe the market went down -20% into a classic bear market. You buy the dip and what’s the reward? Now you only have to wait 14.2 years and endure a -78% drawdown before seeing a return on your investment.
What if you bought the dip after a drop worse than what we had during the COVID crash at -40%? Then you wait 11.8 years to get your money back and have to suffer a further -71% drop.
And, if you are a super dip buyer and bought after things fell -70%, you would still have to wait 2.5 years to recover and stomach a -42% drop.
Think about that for a second.
You bought a -70% dip and you still have to deal with a further crash that is even worse than the COVID crash and lasts about five times as long.
See, I’m not trying to rain on the parade of everyone who wants to buy the dip. I think buying things on sale is smart! What I am saying though, is sometimes, a dip is not just a dip. It can be a small part of a much larger crash and those sales suddenly don’t return easy gains in a short period of time.
