I have been buying dips aggressively since March 2020, when I write How to Predict a Stock Market Bottom Like Nostradamus. My daughter was born four months earlier, and something inside me clicked, pushing me to invest heavily in preparing for her future in an increasingly difficult world.
Since then, I’ve continued to buy almost every reasonable dip (2%+) because I remain loyal to America, artificial intelligence, consumers’ insatiable desire to spend instead of save, and economic policies designed to keep voters happy so politicians can stay in power.
At the same time, the experience taught me an important lesson: you can be right in the long run and wrong in the short run if you buy the dip often and early.
When Dip Shopping Becomes a Mindless Habit
While reviewing an old post from March 2022 about how your retirement withdrawal rate will decrease during bear markets, I came across an image that just stood out to me. The picture shows how often I bought the dip in the first quarter of that year. It was fun and a little soothing.
2021 was an impressive +26% year, after a +16% 2020 for the S&P 500. After two straight years of healthy gains, it felt unnatural for the stock to begin a correction in 2022. It was as if investors had collectively forgotten that stocks sometimes go down.
As the market went down in early 2022, I started buying VTI repeatedly. February was very difficult, both in the market and in my investment mindset. I kept buying, and the market kept falling. Looking back at the chart, I counted at least 14 different dip buys in that one month alone.
The excitement of buying stocks at discounts of two to five percent quickly ended there the S&P 500 continued to decline another 20+ percent from peak to trough! Buying the dip felt good emotionally, like I was doing something about losing money, but the timing was so far away.
In the end, I should have spread my dip buying in 2022 longer. This is an important context because as we enter 2026, we’ve had three straight years of double-digit gains in the S&P 500. And the same thing could happen again with more fears about valuations and uncertainty in the political environment.
Don’t Buy Too Much Too Soon
I’m sure there will be another 10 percent and a correction in 2026. When that time comes, you want to have enough money to take advantage of it. The problem is that sensible fixes often take months to fully play out. If you spend too much early, you may find yourself watching prices drop dramatically without enough dry powder left.
At the beginning of 2022 alone, I bought the dip more than 35 times in the first quarter. Despite that, the market continued to decline. The lesson was clear: The first recession is often the beginning when valuations are raised or when policy uncertainty rises.
If the markets decide that prices are too expensive or that the company’s expectations need to be reset, it can take several quarters of earnings reports to change sentiment.
Management teams need time to adjust direction and strategy. That process doesn’t happen overnight, which is why small pullbacks of three to five percent shouldn’t be treated as one-off opportunities in a cycle.
How Long Do Corrections and Bear Markets Last?
Historically, a typical 10 percent improvement takes about three to four months from peak to trough. Some resolve quickly, while others extend over longer periods depending on economic conditions and policy responses.
Bear markets, defined as declines of 20 percent or more, last longer. On average, bear markets last about 9 to 14 monthsalthough the range is large. Some are short and violent, while others grind down in many places.
This is important because buying too aggressively at the beginning of a downturn can leave investors ill-prepared for later, more attractive opportunities.
Thinking in quarters instead of days helps. Quarterly gains are when real changes in sentiment, direction, and strategy occur. In between, he is very responsive to noise.
Valuation Is More Important Than Most Investors Realize
We just had three years in a row of nearly 20 percent gains, making most stock investors very rich. In a three-year period, the market is up nearly 80 percent. After such a run, a logical correction should not be surprising.
Today, the S&P 500 still trades at about 22.5 times forward earnings. Historically, when the price-to-earnings ratio has exceeded 23 times (or 30 times respectively), the next 10 annual returns range from about 2 percent to a compounded 2 percent per year. That’s a far cry from the double-digit returns most investors expect.
If valuations were to return to a long-term average of closer to 18 times earnings, a correction of 20 percent or more would not be unreasonable. That’s why context is important when deciding how to buy dips.
The good news is that many of us were thinking this as early as 2025, when the forward P/E is also close to 22X. But we still enjoyed a double-digit return as S&P 500 earnings grew nearly 16.5 percent before dividends. The bad news is that the chances of another double-digit return going forward are low.
Make sure you have a steady stream of cash
Looking ahead, 2026 is a midterm election year. Historically, the middle ages tend to be highly volatile due to policy uncertainty. Now there is growing geopolitical uncertainty as well. Venezuela may not be the last country to be attacked.
Given this background, investors should keep at least 5% of their portfolio in cash, and perhaps closer to 10%. With cash yields north of four percent, the opportunity cost of holding cash is low, especially compared to the flexibility it offers during market corrections.
Buying the dip has worked very well over the past decade, especially during periods of strong currency support and rapid technological progress. I remain optimistic about the long-term trajectory of the US economy and equity markets. However, optimism does not eliminate the need for discipline when valuations are extended and the markets deliver large gains for years.
The key is not to stop buying dip altogether, though move them. Corrections and bear markets often occur over months, not days. By thinking about accommodations, respecting budgets, and keeping enough cash on hand, you give yourself flexibility. Flexibility is what allows you to stay calm and opportunistic.
Build wealth slowly without running out of ammo early.
Student Questions
- How much cash do you currently keep in your investment portfolio, and has that percentage changed as rates have risen?
- Do you buy every dip automatically, or do you measure based on calculation, timing, or market sentiment?
- What do you think about buying dips in your children’s investment accounts during long bull markets?
Diversify Your Wealth Outside of Stocks and Bonds
Another way to avoid buying dip early or often is to be broad in your investment. Stocks and bonds are the basics, but when rates are high and volatility is high, relying solely on stocks can make for costly timing mistakes.
That’s why I invest in real estate, which provides income potential and diversification without forcing you to react to every market downturn. Fundrise it allows passive investment in residential and industrial properties throughout the Sunbelt, where valuations are often low and rental yields high.
Fundrise also provides exposure to private AI companies such as OpenAI, Anthropic, Anduril, and Databricks, helping to balance the portfolio without chasing short-term moves.
I have personally invested over $500,000 through Fundrise. For as little as $10, it’s an easy way to diversify while staying stable during volatile markets. Fundrise is a long-standing sponsor as our investment philosophies align.
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