What “Buy the Dip” Really Means
Welcome to issue #41 of The Davem Dish. Every week I share what actually works in investing based on my 20 years of wins, losses and expensive lessons. You’ll also get my thoughts on solopreneurship because the same principles apply — keep it simple, stay consistent and focus on what matters.
Every time the market has a big red day, my feed fills up with the same three words — Buy the Dip. It’s one of the most repeated pieces of oversimplified advice in investing, in the same vein as “be greedy when others are fearful” and the even more ridiculous, “buy when there’s blood in the street.” Buying the dip has generally been a good move for most of the last three years. Ask ten people what it actually means, though, and you’ll hear some version of “well duh, when the price goes down, buy more,” which is more of a reflex than a playbook on what exactly to do.
To understand what buying the dip means, let’s look at Liberation Day.
On April 3, 2025, the day after the Liberation Day tariff announcement, the S&P 500 fell almost 5% in its worst session since 2020, and individual investors responded by net buying $4.7 billion of stocks and ETFs, the largest single day inflow JPMorgan had recorded in a decade. By that close, JPMorgan estimated the average individual portfolio was down 12.9% for the year compared with 8.3% for the S&P 500, and the next morning the index kept sliding. Then came the tariff pause, and April 9 delivered the S&P 500’s best one day gain since October 2008. Over the following weeks, while $74 billion flowed out of equity mutual funds and ETFs, individual investors kept buying, putting more than $50 billion into stocks after April 8 as the market staged its fastest recovery since 1982.
How that happened, and whether it can keep happening, comes down to a simple question when you Buy the Dip: who is on the other side?
When the Big Money Moved, Everything Moved
For most of market history, individuals were a rounding error. Before 2020, retail orders (I use retail and individual investors interchangeably) rarely made up more than about 10% of daily U.S. trading. Pensions, mutual funds, and hedge funds (institutional investors) set the prices, and when they sold, they tended to sell together.
The rise of quant funds made that pattern mechanical. Mathematical models around trend-following, volatility targeting, and risk parity don’t panic in any human sense. They simply follow a pre-established rule that says to cut exposure when volatility rises, and since they all read the same signals, they tend to cut at the same time. Prices fall, volatility rises, the models sell, prices fall further, and the loop feeds itself until someone with cash decides the discount is worth taking.
Historically, that someone was another professional. Individual investors were a small part of the picture, and in the deepest selloffs, research shows the instinct to buy what the pros were dumping was already there. There just wasn’t enough money behind it to matter.
The New Crowd
Then the barriers came down during the pandemic. Zero-commission trading, fractional shares, and mobile apps made buying a stock as easy as ordering Uber Eats, while stimulus checks, savings that piled up with nowhere to spend them, and millions of people at home with live sports shut down pulled attention toward the market. Near zero interest rates meant savings accounts paid nothing, so stocks felt like the only game in town. Meme stocks turned investing into a social event, social media became the source of investing advice and for a generation priced out of the housing market, swinging for the fences in the market started to feel rational. By 2025, individual investors accounted for ~25% of U.S. equity trading volume on average, spiking to a record 35% during the Liberation Day volatility. They also put a record amount of new money into U.S. stocks, roughly 14% more than the previous high set during the 2021 meme-stock frenzy. And the stakes grew with the volume. By the end of 2025, a record 33% of total U.S. household wealth sat in stocks, above the roughly 30% of the 2021 mania and the roughly 27% at the dot-com peak.
For the first time, a new crowd had enough money to change the outcome. The question was what would happen when that crowd met a real bear market, and we didn’t have to wait long to find out.
The Floor That Wasn’t
If you started investing in the last few years, 2022 probably seems like ancient history, even though the bottom was less than four years ago. It’s worth a closer look anyway, because it’s the most recent time buying the dip stopped working.
S&P Global found that retail investors were the most bullish group throughout 2022, and for most of the year the only group with net inflows, while institutions pulled out more than $379 billion. Nasdaq’s data showed retail net buying more than $113 billion of ETFs that year.
The market fell anyway. The S&P 500 dropped 19% for the year and the Nasdaq lost 33%. And the dip buyers paid for it. JPMorgan estimated that individuals’ 2022 dip buying produced losses more than double the market’s. Roughly -54% versus -18% for the S&P. Much of the buying went into a few fan favorites. By September, Apple and Tesla alone were estimated to make up about 34% of the average retail investor’s holdings. Finally, in December, the “conviction” ran out. Individual investors sold aggressively, finishing the year with a month of outflows after leading the buying for eleven.
Why didn’t a record amount of retail buying hold the market up? Because there are two different kinds of dips, and 2022 was the wrong kind.
The first kind is a panic, where someone is forced to sell: a fund meeting redemptions, a trader meeting a margin call, a quant model hitting its volatility trigger. The seller isn’t selling because of what a business is worth, so the price drops below that value, and when the forced selling stops, it snaps back. Liberation Day was a textbook panic, driven by fear of a policy that was paused within a week. A large pool of patient buyers is very good at absorbing that kind of selling. The second kind is a repricing, where the value itself has changed. In 2022, the Fed aggressively raised interest rates from near zero to above 5% by mid-2023, which made every future dollar of corporate earnings worth less today. There was no snapback coming, because the lower price was the new fair price. Retail investors who bought every dip were buying the next step down.
The Golden Age
Then the market spent three years teaching everyone the opposite lesson. There was the fall 2023 correction, the 2024 pullback that peaked at an 8.5% drawdown, and the nearly 20% drop in early 2025 that recovered its previous high in about 89 trading days, one of the fastest major recoveries on record. By the first half of this year, Citadel Securities reported that retail investors were buying nearly 3.5 times their average daily amount on down days for the S&P 500, the strongest dip buying in history.
There was a steady stream of retail money looking for a discount. Each dip was a panic, and panics reverse.
Three years of that builds a reflex, along with recency bias — the tendency to treat whatever happened most recently as a preview of what happens next. Research by economists have found that investors expect the highest returns right after the market has done well, which historically has tended to be when future returns are lower. The sneakier part is how recency decides which memories count. Someone who opened their first brokerage account in 2023 has never lived through a repricing. Their worst memory is April 2025, when the market fell nearly 20% and reclaimed its high within a few months, about as convincing an argument for buying the dip as anyone could ask for. Even investors who were there in 2022 tend to remember it as the time the market came back, because it eventually did. The year of buying every step down, and the portfolios that lost more than twice what the index did all get filed away as a dip that worked out.
Economists have found that the market returns people personally live through shape how much risk they take long afterward, with the most recent experiences weighted the heaviest. Your first bear market becomes the mental model for every one that follows. For a lot of today’s investors, that first bear market lasted a few weeks and bounced, and nothing since has contradicted the lesson. Every quick recovery rewards the dip buyers, meaning they will keep doing it until it doesn’t keep working.
We got a preview in July. After record buying in May and June, retail investors had their largest week of equity selling since 2022, with tech selling beating the previous weekly record by more than 80% and selling in semiconductor and memory stocks exceeding the prior record by more than five times. Leveraged ETF assets fell more than $60 billion from their June peak. The same crowd that bought every dip in the first half turned into sellers once their favorite positions stopped bouncing.
The Water Level is Dropping
Using a rafting analogy, when the water is high, boulders disappear and beginners float through Class V rapids looking like experts. When the water drops, the boulders reappear and the easy channels vanish.
The water level is interest rates, and it just changed. The Fed recently raised rates by a quarter point to combat stubborn inflation, its first increase since 2023, and 16 of 18 officials projected at least one more hike this year. The 10-year Treasury yield has climbed to 5.15%, its highest since July 2007. I don’t spend much time on bonds, but the one relationship with stocks worth remembering is when a nearly risk-free investment pays 5% for the next ten years, bonds become more attractive, and stocks have competition for investor’s money.
None of that means a crash is coming. History is fairly kind to stocks during moderate rate hikes. After a first hike, the S&P 500 has typically fallen a median 2.7% over three months, but across full interest rate tightening cycles since 1954 it has finished higher 86% of the time. And earnings have been strong. S&P 500 earnings grew roughly 50% year over year in the second quarter, the fastest pace since 2021.
What has changed is who comes to the rescue. For three years, a big drop usually had some kind of relief waiting on the other side, whether it was a policy reversal (Trump Always Chickens Out), the hope of lower rates, or another wave of retail money. When the Fed is raising rates, it isn’t in a position to rescue the stock market, and that takes a bounce mechanism off the table. None of this tells you when the next dip comes or who deep it goes. It just means you can’t assume the next one will be a panic.
What Buying the Dip Actually Means
So here’s my take. A dip is only an opportunity if you can answer three questions before you buy.
Why is it down? A scary headline about a company that’s still growing is a panic, and panics tend to reverse. This spring, AI spending fears dragged Microsoft down roughly 30% while the business kept growing. From the one year low in June, the stock is now up +45%. Consecutive quarterly earnings misses, or slowing revenue growth is a reset, and in that case the lower price is the new fair value. Be honest about whether your answer comes from this situation or from the memory of the last four dips that all bounced.
What brings it back, and is that still available? For a quality company, the answer is usually the business itself. Earnings that consistently grow and a price that has drifted below what those earnings are worth. For the broader market over the last few years, it has been a policy reversal or a wave of fresh buyers chasing what’s hot. If you can’t reasonably name the thing that closes the gap, you’re hoping, rather than investing.
What’s my exit if I’m wrong? Decide this before investing, not in the middle of it. Last summer I bought Novo at $54.30 after a sell-off, and I was early. The stock kept falling, my stop triggered, and I took a small loss and moved on. If I were still holding, I’d be down almost 30%. The dip kept dipping. Anyone who’s invested in Chipotle, Adobe, Rollins, or countless other companies in recent years has experienced the same. A lower price on a deteriorating business looks like a dip until you check the numbers. You have to have a plan for when buying the dip doesn’t work.
In the Davem Method, those questions become rules and risk mitigation strategies. I’m not just buying any company that falls during a downturn and hoping it bounces back. For me, a dip worth looking at is a quality company, with a track record of growing sales and earnings, trading below fair value by enough to earn my minimum return, sitting at a recent technical support level. All of that research work is done long before the price drops, so when the market turns red, I’m not scrambling to decide whether something is cheap. I’m just checking whether the price has reached a level I picked weeks or months prior. When it’s time to buy, the rest is already decided. How much to invest and how much I’m willing to lose. The one thing I never do if the position turns against me is average down. If the stop takes me out, and if the analysis still holds, I can always buy it again at a lower price with my capital intact.
For your index funds and 401(k), the definition is simpler still (if you have 10+ years before you need the money). Buying the dip there just means not turning off your automatic contributions when the market is red. That’s the reflex that works almost regardless of which kind of dip it turns out to be.
Notice the pattern. The most mechanical version of buying the dip, automatic contributions with no thinking at all, works. The most disciplined version, with the analysis done ahead of time and the exit set before you buy, works too. What fails is reflexive buying of whatever’s popular, sized by conviction, often with borrowed money, and with no plan for when the bounce doesn’t come.
The crowd is going to keep buying dips, and lately they’ve been right. Your edge is knowing which kind of dip you’re looking at, and having your exit decided before you need it.
Cheers,
Andrew
Thanks for reading The Davem Dish! If you enjoyed this issue, feel free to subscribe and share it with other awesome people like you.
The content provided are personal opinions and presented for educational purposes only, as of the date published or indicated. Davem Advisors LLC is not a bank, licensed securities dealer, broker or investment advisor. Displayed returns are unaudited. Nothing stated constitutes a recommendation or advice as to whether any investment is suitable for a particular investor. You alone are solely responsible for determining whether any investment, strategy or service is appropriate for your objectives. Past performance is no guarantee of future results. Inherent in any investment is the risk of loss.