Should you buy the dip? Evidence from history

Franklin Templeton have put out an interesting quant study on equity market performance after geopolitical events. They’re essentially asking whether investors should “buy the dip” after a shock. The answer is probably yes – most of the time investors make money doing this. But it’s by no means a certainty as at least a quarter of the time equity markets have continued to fall. That implies that investors should be measured in the positions that they take, and not bet everything on a rebound that might not happen.

One other interesting element of this study is that most of the outperformance has come between one to three months after the event. That would suggest that it’s not critical to rebalance portfolios immediately, but if you wait for the next annual review cycle your clients will probably miss out.

The full article is here.

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This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

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