Analyzing 2017: What Would Your Average Return Be if You’d Bought on the Dip Last Year?

You could have made some good returns on BlackBerry Ltd. (TSX:BB)(NYSE:BB) last year if you bought on the dip.

The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are many articles that talk about buying on the dip and whether or not you should buy a stock that has dropped in price. Previously, I had looked at the likelihood of a stock bouncing back after a bad day, but now I’ll look at what your average returns would be if you’d held on to the stock for seven days as well as for a full month.

Methodology

I populated a full year of data for 2017 for 30 of the most popular stocks, and in my calculations, my assumption was that when the price dipped below a certain percentage, the stock would be bought and held for a month. If the share price dipped again after holding for a month, then another purchase would be made.

However, for the purpose of simplicity, I assumed that no additional purchases were made if there’s already been a dip within the past month and where you’re already holding the stock.

Buying on a 2% dip

In my sample of data, I found that the average seven-day return when buying on a dip of at least 2% was just 0.67%. For the full month, returns were higher and averaged more than 2%. However, more volatile stocks saw bigger returns.

Four popular pot stocks were included in my sample, and their average 30-day return was 11%, with Aurora Cannabis Inc. (TSX:ACB) leading the way at over 14%. Tech stocks Sierra Wireless, Inc. (TSX:SW)(NASDAQ:SWIR) and BlackBerry Ltd. (TSX:BB)(NYSE:BB) also averaged more than 5% when held for a month.

Buying on a 5% dip

If you’d waited out dips of 5% or more, then over the course of seven days, your returns would have averaged 0.71%, and over 30 days they would have been only 0.11%.

Once again, pot stocks averaged higher seven-day returns of 3.6%, while over 30 days those returns rose to 5%.

Why would 5% dips produce lower returns than when buying on a decline of just 2%?

At first glance, you may be wondering why the returns wouldn’t be greater for a 5% drop in price. However, when a stock drops more than 5%, not only is it rarer of an occurrence, but it’s also a very bad performance that usually is tied to an adverse development that might signal something is wrong.

Take Home Capital Group Inc. (TSX:HCG) as an example. Although it has recovered after receiving a lifeline from Warren Buffett, the stock was hit with scandal in 2017, and buying when the share dipped more than 5% would have left you with an average loss of 6% over 30 days.

Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) is another example of a stock that saw a lot of problems last year, as it reached all-time lows. Buying on 5% dips here would have left you with an average 30-day loss of 5%.

Takeaway for investors

These results suggest that buying on the dip could work well, but simply looking for stocks that have declined will not guarantee you positive returns.

Although you could have made an 18% return on Aphria Inc. (TSX:APH) if you’d purchased the pot stock when it dipped more than 5% last year, you would have made 200% if you simply held the stock for the latter half of the year.

Timing can work in certain situations, but more likely than not, you’ll either miss out on gains along the way or find the hole getting deeper as you wait and hope for the stock to recover.

Should you invest $1,000 in Sierra Wireless right now?

Before you buy stock in Sierra Wireless, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Sierra Wireless wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. David Gardner owns shares of Sierra Wireless. The Motley Fool owns shares of BlackBerry and Sierra Wireless. BlackBerry is a recommendation of Stock Advisor Canada.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

a person watches a downward arrow crash through the floor
Dividend Stocks

Is This Correction Your Chance? Top 4 Canadian Dividend Stocks on Sale

Stocks may be down, but now is your chance to get some of these top dividend stocks on sale.

Read more »

open vault at bank
Bank Stocks

3 Canadian Bank Stocks to Shield Against Market Downturns

Canadian bank stocks are some of the best options on the market, and these three are probably the top ones.

Read more »

worry concern
Stocks for Beginners

Got $2,000? Buy These 2 Canadian Stocks as Trump Tariffs Rock the Market

There are two Canadian stocks that have continued to do well even amidst this turmoil, so let's take a look.

Read more »

calculate and analyze stock
Bank Stocks

1 Canadian Stock Down 7% to Buy and Hold for a Long Haul

Now is the time to take advantage of this top-notch Canadian stock, buying it while it's still down.

Read more »

ways to boost income
Tech Stocks

How I’d Invest $11,500 in Canadian Fintech Stocks to Revolutionize My Finances

Propel Holdings stock's recent dip could be a trading opportunity for long-term financial gains. Here's why the fintech stock is…

Read more »

Confused person shrugging
Dividend Stocks

Where to Invest $2,500 in the TSX Today

These TSX stocks offer attractive dividends and a shot at decent upside on a rebound.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,956.66 in Annual Passive Income

Dividends stocks can make a huge difference, even if shares don't move an inch. And these might be the best.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Got $5,000? 5 Income Stocks to Buy and Hold Forever

These income stocks have a solid dividend-payout history that can help you earn stress-free passive income.

Read more »