Did some backtesting on what if we only buy when the market dips

[cclay88]

@pepperbites Absolutely. One more core concept that many believe in MF is mean reversion. Basically overperforming funds start to underperform eventually. And underperformers start to overperform.

The reason many believe is overperforming MF start to get lots of funds from investors since they became popular, and it becomes tough when the money gets too big.

But of course, it's a theory. And there are exceptions to this rule - like Peter Lynch.

 

[holytheophany]

@cclay88 In the long run, it does not matter how you accumulate. Just concentrate on accumulation. Even an idiot who buys at all time high will make good returns in longer period than smart investor who waits for dips in the market.

 

[cclay88]

@holytheophany Absolutely. SIP is still the king. I just wanted to see does buying the dip has any merit.

 

[budsmama]

@holytheophany The OP here just proved you wrong and you are harping on the opposite. People obviously invest in tranches but the lesson is simple if you want extra pouch to your portfolio buy more when others are afraid

 

[holytheophany]

@budsmama Peter Lynch “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”

 

[budsmama]

@holytheophany Because Peter Lynch was not a student of behavioral economics/finance. If people didn't take advantage of dips as buying opportunity then you wouldn't have people becoming wealthy or even accumulating wealth. There is a term called rebalancing a portfolio which is precisely what people do when corrections happen.

 

[blaise]

@cclay88 I don’t get it. If buying the dip gives comparable returns to SIP, why is it a solid strategy? More effort for same performance.

Imo the only time you should follow an active investment strategy is if your income isn’t of a periodic recurring nature.

 

[budsmama]

@blaise Frankly SIP should have out performed by a mile and it shouldn't have been this close. There are always assumptions which matter but the lesson is always buy more when others are afraid

 

[cclay88]

@blaise Fair point. When I set out, I assumed buying the dip won't beat SIP (just like most active strategies don't). I was surprised it matched SIP returns, so was impressed at the time.

Second, many active investors won't stop here. The fact that it matches passive investing gives the idea that this can be improved and applied beyond index investing - with possibly even better returns.

 

[budsmama]

@cclay88 Cool information, SIP not out performing more is surprising. But have always believed buy more when others are fearful, good to see it works.

 

[cclay88]

@budsmama Same here. When I started I thought SIP would eat this up and outperform by a huge margin. Pretty surprising it didn't.

 

[budsmama]

@cclay88 All the best on your journey. Rebalance your portfolio when corrections happen, even that adds a few basis points in the long run.

 

[justdeleteme]

@cclay88 Can you pls do the same for nifty small cap? Nifty 50 has been relatively very stable.

 

[cclay88]

@justdeleteme Here you go. Did the same for BSE Smallcap (although the data avialblable is only for the last 20 years).

SIP edges out here. SIP returned Rs. 9.8L and Buy the Dip returned Rs. 9.2L

 

[ynotstone]

@cclay88 https://monsoonmarkets.substack.com/p/dont-be-a-hero-own-some-gold

Sgb changed to 2.5%

 

[cclay88]

@ynotstone Thanks! Will update.

 

[joen]

@cclay88 SIP is easier and I'm sure one can find the difference in the span of 25 years

 

[fodare]

@cclay88 Just saw your gsheet and noticed that buy on dip actually has lesser investment too. So buy in dip is actually performing better

 

[victhemag]

@cclay88 Respect brother

 

[cclay88]

@victhemag Thanks brother