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The US stock market has been choppy this summer, but once again it looks like it would have paid off to buy the dip. But has it always been this way?
No, according to Goldman Sachs. At least not in the long run, if you’re simply mechanically buying whenever equities have fallen 10 per cent.
It’s true that in the short run buying 10 per cent dips since 2010 would usually have yielded juicy market-beating returns over 3-12 month periods. But over two or five years you’d markedly underperform, because you’d have missed out on periods with strong returns and no drawdowns.
(NB we’re not crazy about the double-axes for hit rates, and note that Goldman seems to have mislabeled the BTD hit rate, as it should be the LHS axis)
And if you go back further — looking at results since 1990 — the BTFD strategy does poorly over almost every timeframe.
Goldman threw in a chart showing the average returns of 20 per cent-dip buying since 1928 for good measure.
If you’re interested in lots more drawdown trivia, Goldman Sachs has made the full report public for FTAV readers.