Timing the Market

 "Don't try to time the market" is some of the most frequently given advice to beginner investors. I decided to do some testing of the theory against a frequently discussed strategy: "buy the dip". I backtested investing in Apple from February 24, 2020 to February 8, 2021. I assumed that one investor (the anti timer) bought one share at the opening price every Monday, while a second investor (the dip buyer) bought one share at the opening price on the first day following a down day (a day with a closing price lower than the previous close). The logic here is that an investor might identify a stock they are bullish on over the weekend. The anti timer would simply buy as soon as possible, while the dip buyer would wait for the price to decline. If the Friday before that weekend was a down day, then I assume both the anti timer and dip buyer would buy at the Monday opening price. I ignored weeks with a market holiday, and weeks with an ex-dividend date. 

The anti timer outperformed the dip buyer in this analysis. The dip buyer paid a lower price in only six of the 39 weeks. The anti timer paid a total of $3,896.64, while the dip buyer paid $3,908.43 for the 39 shares. The close on February 12, 2021 (the final week of this analysis) was 135.37, making the 39 shares worth $5,279.43. Ignoring dividends, that is a 35.5% gain for the anti timer, and a 35.1% gain for the dip buyer. Not a huge difference. The logic against buying the dip is that equities generally increase over time, and the dips are unpredictable, so it is best to simply buy as early as possible. While this analysis confirms that, I wouldn't rule out the possibility that a more sophisticated dip buying strategy may be effective. This might be a topic for a future post. 

The six instances of the dip buying strategy paying a lower price are in bold.

Date	Monday Open	First Dip Open
Feb 24, 20	74.32	71.63
Mar 2, 20	70.57	70.57
Mar 9, 20	65.94	65.94
Mar 16, 20	60.49	61.85
Mar 23, 20	57.02	57.02
Mar 30, 20	62.69	62.69
Apr 13, 20	67.08	71.85
Apr 20, 20	69.49	69.49
Apr 27, 20	70.45	71.18
May 11, 20	77.03	78.04
May 18, 20	78.25	79.17
Jun 1, 20	79.44	79.44
Jun 8, 20	82.56	86.18
Jun 15, 20	83.31	87.85
Jun 22, 20	87.84	87.84
Jul 6, 20	92.5	94.18
Jul 13, 20	97.27	94.84
Jul 20, 20	96.42	96.42
Jul 27, 20	93.71	93.71
Aug 10, 20	112.6	112.6
Aug 17, 20	116.06	116.06
Aug 24, 20	128.7	126.18
Aug 31, 20	127.58	127.58
Sep 14, 20	114.72	114.72
Sep 21, 20	104.54	104.54
Sep 28, 20	115.01	113.79
Oct 5, 20	113.91	113.91
Oct 12, 20	120.06	121
Oct 19, 20	119.96	119.96
Oct 26, 20	114.01	114.01
Nov 9, 20	120.5	120.5
Nov 16, 20	118.92	118.61
Nov 30, 20	116.97	122.6
Dec 7, 20	122.31	122.31
Dec 14, 20	122.6	122.6
Jan 4, 21	133.52	133.52
Jan 11, 21	129.19	128.5
Jan 25, 21	143.07	139.52
Feb 8, 21	136.03	136.03
Total	3896.64	3908.43