Buying the Dip

 

 

 

 

 

 

We have an explanation—or at least a credible hypothesis from a trustworthy source—about why the market under Donald Trump II always shrugs off even the worst news within 24 to 48 hours (at least so far).

From Matt Levine’s newsletter:

But that is famously no longer true, these days, in the stock market. Retail investors now love buying when the market crashes. The Wall Street Journal reports:

War in the Middle East. Artificial-intelligence jitters. A “SaaS-pocalypse” that wiped billions in value from software stocks. Whatever fresh shocks have rippled through markets, individual investors have fallen back on the same strategy: buy, buy, buy. 

Fears of economic disruption from AI and the conflict with Iran have sent stocks on a roller-coaster ride in recent weeks—but the everyday traders who play an increasingly pivotal role on Wall Street have remained the market’s most loyal buyers. February was one of the strongest months for retail buying since the meme-stock frenzy of 2021, according to a report from Citadel Securities, and the fifth-biggest month on record.

And on Monday, as major indexes slid in early trading during the first session since the conflict’s outbreak, individual investors poured $2.2 billion into stocks and exchange-traded funds, according to analysts at JPMorgan Chase. Stocks finished almost flat. Dip-buyers also helped pare Tuesday’s early drop.

This is an interesting stock market story: Are retail investors the ultimate value investors in the stock market? Does the constant retail buy-the-dip bid insulate the market against volatility? If you are a professional equity investor or market maker or options trader, are your models evolving because markets now can’t go down much before retail investors flood in and push them back up? Just a strange new way to think about stock markets, that passionate individual investors prevent crashes. 

I’m a bit surprised that retail investors have the money to move the markets like this, but I have to admit I’m not that knowledgeable on this subject, and my intuition doesn’t count for much. The increased power of retail could also reflect the fact that lots of smart money has been heading either overseas or to safer havens like Gold. The Dow Jones Industrial Average, NASDAQ Composite, and S&P 500 of 2026 belong to the people who chose to remain.

Part of the charm of Levine’s writing is his irreverent framing. This can occasionally tip over into the overly cute, which may be happening here. I assume describing the Robinhood crowd as the new value investors is meant to be at least a touch ironic and maybe openly sarcastic. The joke here is that retail investors—particularly in the age of HODL—are the absolute antithesis of a Warren Buffett. These are the people who brought us the meme stock and who, rather than seeking out low price-to-earnings ratios, embraced companies like Tesla, Inc. even after their sales collapsed. Buying the dip does have some occasional, superficial relationship to the strategy of value investing, but the similarities are coincidental. Robinhood retail is an investing philosophy based far less on Benjamin Graham’s fundamentals than on the 300.

What Is Value Investing?

Value investors believe that the market overreacts to good and bad news, resulting in stock price movements that don't correspond to a company's long-term fundamentals. The overreaction offers an opportunity to profit by purchasing stocks at discounted prices.

Warren Buffett is probably the best-known value investor today, but there are many others, including Benjamin Graham (Buffett's professor and mentor), David Dodd, Charlie Munger (Buffet's business partner), Christopher Browne (another Graham student), and billionaire hedge-fund manager, Seth Klarman.

(Seriously, these HODL/diamond-hands people are deeply weird.)

More importantly, I have real issues with the idea that retail investors are in any meaningful sense preventing crashes. Having markets shrug off bad news simply seems to mean that they are failing to price it in. That would seem merely to defer crashes, letting the market become increasingly unmoored from actual value until reality comes slamming down.

Keep in mind that what you’re reading here (excluding direct quotations) is the most ill-informed of opinions, so if you know something about markets and investing and you’ve caught me saying something that sounds stupid, you’re probably right—so please let me know in the comments section.

That said, it seems like a bad idea to trust our collective 401(k)s to these guys: