How the “Buy the Dip” Generation Came to Be

By Charlie Bilello

21 Sep 2021


“Buy the dip.”

This has been the mantra for an entire generation of investors.

Why?

Because we are creatures of habit, and during the last 12 years the best habit you could possibly have had as an investor was to stop worrying and simply “buy the dip.”

The fact that dips were often followed in short order by new highs created the most powerful positive feedback loop in the history of markets. The act of buying weakness has been handsomely rewarded, again and again.

Let’s take a look back at how the buy the dip (“BTD”) generation came to be…

2009

The S&P 500 had 4 minor dips following the low in March 2009, all of which quickly recovered to surpass the prior highs.

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2010

In early 2010, there was a large dip followed by a vertical comeback. Then the flash crash hit in May 2020 which morphed into a more significant decline (-17.1%). However, the S&P 500 would fully recover before year-end.

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2011-13

2011 saw a dip greater than 20% from May through October, but the S&P 500 fully recovered by early 2012. The 2 dips in 2012 were both bought and recovered within a few months.

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2013-2015

2013 had only one minor pullback, which was quickly followed by new highs. The 3 pullbacks in 2014 all had vertical advances back to new highs, as did the one in early 2015.

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2015-17

The 2015-2016 dip of 15% took the longest to recover, at just over 13 months. Following that, the 2016 dip saw another vertical advance to new highs. In 2017, the S&P 500 experienced no dip greater than 5%, joining only a few other years in history where that was true.

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2017-19

The dip in early 2018 (-11.8%) took about seven months to recover, which was followed by a 20% move lower later in the year. That correction low saw yet another vertical advance back to new highs in 2019.

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2019-20

The 2 minor pullbacks in 2019 were followed by new highs in short order. Incredibly, the covid crash in 2020 (-35.4%) took only 6 months to fully recover and move back to new highs.

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2020-21

After that, we saw another dip in September 2020 (-10.6%) which was followed by new highs just 2 months later. In 2021, we saw a minor dip in February through March that was quickly followed by new highs and a steady advance thereafter.

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Which brings us to today, where the S&P 500 is currently in the midst of its 25th dip since the March 2009 low.

Will it follow the pattern of the previous 24?

There’s an entire generation of new investors that have been conditioned to believe it will.

What would convince them otherwise?

Only a dip that isn’t soon followed by new highs.

Has that ever happened before?

Indeed it has. Just ask any investor who’s been around since before March 2009…

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About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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