The Buy The Dip Fallacy

in hive-126009 •  last month 

Hey Jesspeculators

Cryptocurrency and the evolution of trading apps like Robinhood have allowed the average retail investor to jump into the market with little or no friction and even better with minimal amounts of capital. These micro trades should, in theory, allow markets to operate more efficiently as money is diluted across more hands.

The concept of trading is still very new to most of us, but what my concern is the growing trend for misinformation and biases that are going to hurt a lot of investors going forward. If you're getting your investor advice from YouTube, Telegram chats, discords or signal trading apps that are free, then you could be making money sometime.

The problem with this is that you are a downstream investor, the only reason you're getting this information and signals is that someone with more significant positions has already going to front-run you and while they are safe you need to hope there is a greater fool than you downstream to pick up the asset at a higher valuation.

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Buy the dip

In a world where pension funds are so desperate for yield that they have such a high allocation to equities to get there 7 - 7.5 return there's a massive moral hazard to whats going on in the stock markets. Central banks cannot allow pensions to go bust and are securing a floor for stocks with money printing to smooth out dips.

Traders realise this, and they know there will be a dip and recover and are actively riding these waves, but they are not built on fundamentals only on momentum of cash flow.

The theory of buying the dip has become louder and louder, and with a fed put on the stock market, you simply cannot lose when buying the dip. The stock market has been in a bull run for ten years now and buying the dip has been profitable in this artificial market, heck it been profitable for 40 years now, since we have fiat decoupled from anything.

The stock market has been actively managed by central banks and governments to reward a certain class of people, asset holders systematically. It didn't matter if you a poor capital allocator or not, you would always win in this market.

If you look at down days of hedge funds before and after 1971, you can see once we hit a fiat standard, these investment firms could do no wrong. Are they geniuses? Are they psychic? No, they are actively being supported by money printing as central banks have been reactive to the slightest market stress.

Buy the dip actually doesn't work in real markets

If we take a look at this study by Artemis capital over a 90 year period we can see that if you bought the dip before central bank fiat money that strategy goes bankrupt three times. I'm not talking minor drawdowns I'm talking flat out lose all your money or at minimum 90% of what you had invested.

We live in a quantitive easing era, and since we humans have a recency bias, we take this as the norm when in fact it's artificial. It's the use of inflation and currency debasement to transfer wealth into equity markets.

This is a clear illustration that we do not have free markets, anyone who thinks that I am open to hearing the counter-argument but it's hard to see where this market is free. If you're not free to lose all your capital as well as earn, then what kind of market is that?

Buy The Dip over 90 years

US Equiteis - 1928 - 2019

Buying the dip continues to reward malinvestment

There is a fantastic comment by Harley Basssman that sums up this phenomenon and its:

"Pigs can fly if shot out of a large enough cannon, but they eventually return to Earth as bacon."

What is happening is we're counting to pore capital into a market of diminishing returns, and it's going to take more and more debt to keep this Ponzi scheme going. It's not going to stop so any dips you buy will be paid for with future currency debasement.

Playing in the equity market is a no brainer, you don't fight central banks, you front-run them, and that's the moral hazard we live with today and why the stock market does not reflect the true nature of the world.

If we do eventually see the reversal happen, I wouldn't be surprised to see 90% drawdown in equity prices and wit it 60 to 70% in home prices. So they will do any and everything to stave that off as long as possible.

That's why I've decided to not play in the stock market and buy my BTC and HODL on as I watch this entire thing eat itself.

Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

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I don't really play with stock since I have not studied it. I mainly only trade cryptocurrency and it seems like as long as we hodl, most cryptocurrency within top 100 of coinmarketcap can usually rise for anyone to earn but it may take longer sometimes.

!tip

You’re right in your analysis most coins are still tethered to BTC so as it moves the others get trickle down! A few will eventually decouple once they actually hit scale and product market fit the majority will either die or forever just move along with the tide

That 5 phase graph is quite something! Is it wrong that I might want to increase my BTC holdings even now? 🤔

Phase 4 and 5 was when we went into QE, I am sure phase 6 is going to be hocky stick but it’s only sloshing value around they just pulling inflation and pushing it into stocks not making new value

I say keep BTC’ing brother I’m so done with Alts now you’ll see why in tomorrow post

Sold! Let's SATurate our ledgers!

LOL! I want my wallet to get FAT on SATs

Yeah, keep buying the dips!!! Of course they are going to continually say that because they know there's a million bag holders behind you that will take their bogus advice and love it. It's pretty crazy how artificial the markets have become, I keep trying to tell that to my dad but he's oldschool and thinks that the stock market is fantastic.

What will be interesting to see is if this trend will continue once they start to pump fed money into things like Bitcoin. Will we see moon then crash as we do now?

I would encourage you to check out the stock market of Venezuela and Zimbabwe and Japan and overlay it with when they were printing lol same thing it’s just that the US can still export its inflation as theirs a massive need for dollars world wide and with countries like China and Hong Kong sitting on dollars to hold their peg its artificially high so they can just print till the cows come home

I have no doubt your dad will make money but then going to nail his gains with tax and nail is all with inflation

I’m still unconvinced if institutions putting money directly into BTC just yet they have been more focused on derivatives like ETFs and investing in private equity of crypto companies Until they overcaptislise those markets they won’t look at the real deal

I think what’s going to set it off is one country opens up says this is our position in BTC the first one to do that will make the place go nuts and so far it looks like Iran is mining BTC

I loved the comment with the pig lol, so true

I do love a good bacon fry up so fire away poor piggy

Hahahahaha😂

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