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How My 'Strategies To Buy The Dip' Have Performed

Ploutos profile picture


  • In April, I highlighted for readers early recovery strategies that tend to outperform in the year after stocks have bottomed.
  • These strategies - equal-weighting, size, and value - have all outperformed record gains in the capitalization-weighted benchmark since in the market lows.
  • These strategies generate structural alpha over a business cycle, but most of the alpha comes from the early phase of the economic recovery.

In a mini-series of articles beginning on April 17th, I highlighted for investors strategies to "buy the dip". I commented that timing the bottom is always a challenge, but that investors do know what strategies have worked the best from previous bottoms when the market has recovered. In this article, I want to highlight where those strategies currently stand, and use history to indicate where those trades could head in the future.

No sense burying the lede deep into the article on a topic on which I have already authored. The three strategies I highlighted in previous articles were equal weighting, small caps, and value-tilted funds. All three of these strategies have historically outperformed in early recovery periods. The three indices that I used to describe these strategies have all outperformed in the subsequent eleven weeks. The S&P 500 (SPY) has done tremendously over this period. Not since the 1930s has the broad market gauge risen so quickly over such a short time horizon. These three strategies have done even better.

3 Early Recovery Strategies Trouncing the S&P 500Source: Bloomberg


The first strategy I highlighted was how an equal-weight version of the S&P 500 (NYSEARCA:RSP) strongly bested the capitalization-weighted index in the year following stocks bottoming during 2008 and 2002. When the S&P 500 bottomed in March 2009, the index soared 72% over the next year, but the equal-weight version of those same constituents rallied 107%.

Like the Financial Crisis episode, the equal-weighted index sharply outperformed in the recovery from the deflation of the tech bubble in 2002. Over the next year from the 2002 bottom, the S&P 500 rallied 36%, but the equal-weight index rallied 58%.

Since the bottom on March 23, 2020, the equal-weighted index has outperformed the capitalization-weighted S&P 500 by more than 12% (57.7% vs. 45.1%). For those keeping score at home, roughly 9% of those relative gains have come

This article was written by

Ploutos profile picture
Institutional investment manager authoring on a variety of topics that pique my interest, and could further discourse in this online community. I hold an MBA from the University of Chicago, and have earned the CFA designation. My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.

Analyst’s Disclosure: I am/we are long RPV, IJR, RSP, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

Ryan Telford profile picture
Ploutos, thanks for the piece.

I actually covered some similar ETFs recently:

Combining your size and value factors has had some attractive returns as well, i.e. IJS. Not to mention more focused strategies of 20-30 stocks:

Looking forward to future articles.

l2edzl3oy profile picture
Thanks @Ploutos for another insightful piece! Thought it would be interesting and useful to also consider different starting dates. Theoretically (i.e. one had bought at the market bottom on March 23 2020), these factors have outperformed as you have shown. But realistically, most (me included) would have missed the bottom. In that case, what if one had been a few days / weeks early / late? Would the outperformance still hold?

I believe the broader term for this is known as Rebalance Timing Luck (per Corey Hoffstein from Newfound Research). He investigated this variable (on when to rebalance) and found that it can result in a performance difference of 2.5% p.a for the value factor (semi-annual rebalance vs a timing-luck neutral benchmark; see www.linkedin.com/... ).

Hope this meaningfully adds to the discussion.
Mick Research profile picture
I am not sure I understand the meaning of this article.
Those strategies work as you describe only if you get the timing right. As your chart clearly shows, all 3 strategies have underperformed SPY YTD.
Had you rotated from SPY to any of the 3 strategies after a 20% drawdown, you would have probably underperformed SPY.
richjoy403 profile picture
Plotous -- Agreed, buying the dip works, and I also agree ETFs are excellent investment vehicles.

I'll comment on my own experience...
Beginning with 1974, and also 1987, 1990, 2002, 2008, and 2020 YTD, it's been thoroughly demonstrated and reinforced (to my satisfaction) that I should never exit equities.

Corrections and recessions are inevitable, as is that I'll never know market tops and bottoms until after those events. If for nothing else the present bull market is an excellent example of a market being pushed higher by investors who didn't believe its initial advance, found themselves further and further behind, and now find themselves buying due to their FOMO.

During declining periods I'll trim or exit declining positions, but also be nibbling (buying in small quantities) stocks I want to own when priced attractively.

No one knows how long or deep a period of equity decline will extend--nor the propitious moment to buy. Beginning in January, I've exit positions in which I lack high-confidence (e.g., AMLP, BPR, MAC, RDS.B, SPG, VTR), and begin the building of new positions in higher-quality 'blue chips' (e.g., AVGO, DIS, HD, QQQ, RTX). I also took a position in WFC, based upon my confidence its new CEO Charles Scharf will the bank to its former blue chip standing.

I never tell others to do as I do; I only post information on my process.

metameta profile picture
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