{"id":2050161,"date":"2016-06-25T11:37:52","date_gmt":"2016-06-25T06:07:52","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2050161"},"modified":"2018-10-04T17:17:24","modified_gmt":"2018-10-04T11:47:24","slug":"systematic-buy-dip","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2016\/06\/25\/systematic-buy-dip\/","title":{"rendered":"Systematic Buy-the-Dip"},"content":{"rendered":"

Introduction<\/h3>\n

We often hear the term “buy-the-dip” whenever the markets are correcting. However, here are some questions that face an investor:<\/p>\n

    \n
  1. What exactly is a “dip?”<\/li>\n
  2. Where does the cash come from?<\/li>\n
  3. How much should I buy?<\/li>\n<\/ol>\n

    The answers to these questions will determine how much alpha you will generate by employing this strategy.<\/p>\n

    What is a “dip?”<\/h3>\n

    A dip is a percentage loss from a near-time peak (also called a drawdown<\/a>.) For example, if the NIFTY posts a 50-day cumulative loss of 5%, then that is a 5% dip over where the NIFTY closed 50-days ago. To get a sense for how these 50-day dips\/drawdowns are distributed, we do a density plot.<\/p>\n

    \"drawdown.density.NIFTY<\/p>\n

    \"drawdown.density.NIFTY<\/p>\n

    As we can see, most of the NIFTY dips are at around 5%. A more than 10% dip is a “back the truck up” event where we deploy all our cash. For MIDCAPs, it is around 10% and 15%.<\/p>\n

    The back test<\/h3>\n

    Every day, an investor has Rs. 1 that he needs needs to invest. He can either buy the NIFTY\/MIDCAP or he can park it a short-term bond fund\/savings account. Additionally, if it is a “back the truck up” dip, he can liquidate the bond fund and buy the NIFTY\/MIDCAP. Let’s tag this as DIP<\/strong>.<\/p>\n

    In a DIP<\/strong>, the investor only buys NIFTY\/MIDCAP if it is in a dip. Otherwise, he buys Rs. 1 worth of bonds.<\/p>\n

    The base case is that the investor buys Rs. 1 worth of NIFTY\/MIDCAP every day. Let’s tag this as SIP<\/strong>.<\/p>\n

    Should you buy the dip?<\/h3>\n

    Yes, buying the dip allows you to build a bigger corpus, if your transaction costs are zero. Here are the NIFTY and NIFTY MIDCAP buy the dip (DIP) vs. daily purchase (SIP) final corpus:<\/p>\n

    \"dip-sip\"<\/p>\n

    Given how small the alpha is, net of fees\/commissions\/slippage\/taxes, this is a losing proposition. You are better off with a SIP<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Introduction We often hear the term “buy-the-dip” whenever the markets are correcting. However, here are some questions that face an investor: What exactly is a “dip?” Where does the cash come from? How much should I buy? The answers to these questions will determine how much alpha you will generate by employing this strategy. What … <\/p>\n","protected":false},"author":2,"featured_media":2050211,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[1270,3833],"class_list":["post-2050161","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-investing","tag-sip","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2050161","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2050161"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2050161\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2050211"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2050161"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2050161"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2050161"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}