When does buying the dip work, and when not? Since pictures tell a thousand words, I’ll try to contextualize and make sense of all market movements with this chart:
https://preview.redd.it/lf1k4i0rx5xe1.png?width=4895&format=png&auto=webp&s=04455f36f87a169f3b2fb9885eb45eb415630db7
If there was one market pattern that every long-term investor ought to be aware of, it would be this.
The DJIA advances in orders of magnitude, then takes a breather for over a decade before proceeding. While we commonly learn about those notorious years when the market set a major top or bottom, we’re overlooking the true context in which these events have happened. Let me give you examples:
1. Although the DJIA quadrupled rapidly from 100 to 400 in the years leading up to the 1929 top followed by a 90% crash, it was in fact yoyo-ing around 100 (1906-1942). Only the bottoming in 1942 ignited in a sustainable move to 1,000 (1942-1966).
2. The credit crunch, oil shock, lost decade of Latin America all happened around the 1,000 mark for 16 years before we could finally emerge from it and advance toward 10,000.
3. Same in recent decades. Some of us lived through a dot-com bubble burst and a financial crisis. The true context, however, is that the market was merely swinging around the 10,000 mark for 11 years before sufficient fundamentals allowed otherwise.
I propose that these market phases are of greater significance:
* Range at 100: 1906 - 1942
* Advance to 1,000: 1942 - 1966
* Range at 1,000: 1966 - 1982
* Advance to 10,000: 1982 - 2000
* Range at 10,000: 2000 - 2011
* Advance to 100,000: 2011 - ?
To answer the above question, dip-buying works best during years of advancement. All corrections therein will be V-shaped. We’re still smack in the middle of an advancement stage. Every correction ought to be exploited because generational wealth creation will become challenging after we hit 100,000.
According to my current projection, we may hit it as early as 2032. That’s when outsized gains can deflate again fast.
I’m using the DJIA because it has the most price history but you can see a similar pattern in the S&P 500. It advanced from 100 to 1,000 and is visibly heading to 10,000.