Tactics much like that worked a treat since the mid-1970s. Then - early in 2008 - along came Jim Rogers to warn about the dangers of buying the dips. Buying the dips was about as sensible as hang gliding without a parachute. Sure, catch the thermal and the elation would be primeval; but get it wrong and it would be 'bye bye, world'. In short, there was no downside protection.
Jim Rogers' advice had a big impact on me. Here was an investment guru to take seriously. It wasn't just that he had both a prodigious intellect and a sense of humour. He had also founded the Quantum Fund with George Soros in 1973 and by 1980 had made enough money to retire, which - temporarily - he did. True, he didn't use that hang gliding metaphor. But he did point to the truth that, just because a tactic has often been successful, without logic to support it, it would fail at some point.
For the imperative to 'buy the dips', that point seemed to have arrived within months when the US central bank allowed Lehman Brothers to fail. As the rest of the US financial system teetered on the brink and those all around were losing their heads, buying the dips sounded like a crash course in self-immolation. The small voice of Rogers' warning suddenly rang clear and it chimed with another great investment cliché, which suddenly took on a prescience it had always lacked - this time it's different. Surely, in late 2008 this time it was very different - buy the dips and you'd be slaughtered.
As it turned out, Rogers' advice was rubbish. Early 2009 was a great time to buy the most savage dip in share prices since 1974. Much the same was true in mid-2010 when UK share prices had fallen 16 per cent in quick time; ditto late 2011 when prices had dropped 19 per cent in a couple of months; and ditto this summer after the shock of the Brexit vote. On each occasion, the determination of central banks to prevent falling securities prices from creating self-reinforcing misery, or - depending on your view - their overindulgent response to the bleating of the securities industry, meant it was not different at all.
But one characteristic of common sense is that it keeps coming back, so just last week the European Central Bank (ECB) was warning about the dangers of buying the dips; or that was the main message of its latest Financial Stability Review. The European Central Bank ECB) worries that financial markets are getting too used to the fix that regular doses of quantitative easing brings. There is a broad pattern over the past few years, it says, of elevated market volatility followed by a quick correction in asset prices. "As such a pattern takes hold," says the ECB, "there are risks that market participants may become complacent as they see a lower likelihood of prolonged asset-price corrections. Such complacency could translate into undue risk-taking by investors and potentially contribute to a further stretch in asset price valuations".
Certainly the ECB is concerned that equity ratings look rich. That particularly applies to the US, where price/earnings (PE) ratios are around the top of their historical range; this applies to both trailing and prospective multiples, as well as to the so-called 'CAPE' - or cyclically-smoothed - earnings multiple. The UK's ratings are not too far behind, although the smoothed PE is still towards the low end of its range.
True, it's not all bad. Markets' liquidity may be better than some years ago, making them more resilient. Similarly, investors may have lower leverage, so they are less likely to panic-sell when trouble arrives; certainly banks have more capital in relation to loans than before the Lehman crisis.
Yet the ECB also draws attention to "the inherent fragility of the open-end fund model". This was exposed by the post-Brexit panic, which led to some UK-based property funds refusing redemption requests. The potential problem of instantly-callable funds and illiquid commercial property sitting on either side of a balance sheet may seem too unusual to cause much worry. But such a mismatch is also pretty much how the banking system works.
It does not help that all banks use similar value-at-risk models that tell them the same thing - that lower volatility in financial markets means lower possible losses. That just persuades them to take more risks than they should, the ECB frets. Simultaneously, prices of asset classes are increasingly moving together just as banks and other investors herd into the same lower-yielding, longer-dated, less-liquid bonds.
Take these factors, add in the politics of populism, and it's easy to induce the fear - to quote Leonard Cohen for the second time in three weeks - of "a mighty judgement coming, but I may be wrong". Obviously, I hope so and, if truth be told, I wish I had had the courage to buy the dips more often than I did.
