Are stock market dips reliable indications of valuation distortions that reliably revert, thereby offering buying opportunities? In his May 2026 paper entitled "Buy the Dip? Not So Fast", Javier Estrada considers two ways to evaluate an array of buy-the-dip (BTD) strategies, assuming that BTD capital must come from somewhere:
- Buy-hold-rebalance (BHR) - the BHR benchmark holds a periodically rebalanced 60%/40% stocks/bonds portfolio. The BTD alternative shifts one quarter of the bond allocation to buy dips after months with negative stock market returns. Rebalancing frequencies for both BHR and BTD are one, five or 10 years.
- Buy-and-hold (B&H) - the B&H benchmark holds 100% stocks. The BTD alternative instead initially holds 40% bonds with one quarter of this amount ready to exploit dips in stocks.
In sensitivity tests, he considers different bond allocations (20%, 60% and 80% bonds), different dip thresholds (–3%, –6%, –9%, –12% and –15%), and different transfers from bonds to stocks to buy dips (50%, 75% and 100%). Using Shiller data for U.S. stock market and bond (10-year U.S. Treasury Notes) returns during February 1871 through December 2025, he finds that:
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