By Teresa Rivas

Bargain hunters, beware: You often get what you pay for.

Various factors -- including increasing debt, fierce competition, and execution risks -- led to a selloff in artificial-intelligence stocks in mid-November that dragged much of the market down with it. Yet some investors were happy about the declines. With the market--and tech stocks in particular--near record-high valuations, many saw November's weakness as a buy-the-dip opportunity, with the idea being that after falling so far so quickly, stocks were oversold, i.e., all the bad news was more than priced in.

That appears to have been the case, to an extent: The S&P 500 index has gained about 4.5% from its one-month Nov. 20 low, and the Nasdaq Composite is up more than 6% from that point. Yet both are still below their late-October highs.

The reality is that the adage "time in the market beats timing the market" still rings true, with two firms arguing this week that trying to buy stocks when they're cheap is actually not the best strategy.

" 'Buy the Dip' has captured the imagination of many investors, offering an intuitive way to purchase assets at a discount," writes AQR Capital Management's Jeff Cao. "Unfortunately, it doesn't hold up in the data -- one reason is that BTD tends to be on the opposite side of momentum."

The momentum issue is what holds BTD strategies back over the short- and long-term. In terms of the latter, buy-and-hold strategies are by definition always invested and therefore always earning the equity risk premium -- the extra returns investors get for owning risky assets like stocks over risk-free alternatives like Treasuries.

But as Cao writes, even comparing risk-adjusted returns to these two approaches shows that BTD comes up short as measured by the Sharpe ratio, which gauges how much excess return investors get for the risk they assume. The Sharpe ratios of 196 BTD strategies since 1965 have an average of -0.04% compared to just buying and holding, which equates to about a 16% degradation to just owning stocks passively, and more than 60% of BTD events underperformed by this metric.

It's gotten only worse in modern history, with the Sharpe ratio of BTD since October 1989 coming in at -0.27%, a degradation of nearly half compared to just buying and holding equities. Even the best-performing BTD versions, with longer holding periods, show "almost no improvement over passive," Cao notes.

Nor does BTD, he notes, do much as a complement to existing stock allocations as a way to increase or decrease exposure tactically at opportune times. In fact, the alpha -- or performance versus the benchmark -- that it generates is statistically significant in only 8% of those 196 times.

Another big problem is that theory and "empirical evidence suggest that following the trend, rather than buying the dip, is the better (though far from perfect) approach to tactical timing," Cao writes, outperforming precisely when investors want it most, during downturns when the S&P 500 has fallen by 20% or more.

Trivariate Research President Adam Parker similarly argues that the buy-low, sell-high strategy isn't always the best, but rather it can be better to lean into momentum.

He took the 300 largest companies in his coverage and broke them into quintiles based on how far off they are from their 52-week highs, with the first quintile including those that have fallen the most and the fifth quintile including those at or near their highs. Testing their performance since 1999 through November 2025 shows that "over time, you are much better off buying stocks nearer to highs than nearer to lows" he writes. "The best performing quintile over time is the fourth -- meaning down from highs -- but less so than 60% of stocks."

That pattern of strong performance "when buying close to highs and avoiding buying at lows isn't constrained to just larger companies," Parker continues. It holds true for small- and mid-cap companies as well.

That dovetails with his previous work that found picking stocks based on low valuations doesn't work, as cheap stocks are often cheap for a reason. Instead, Parker suggests buying companies with the highest estimate revisions, since earnings are the real drivers of share performance.

Ten stocks with the biggest upward earnings revisions over the last month are Nvidia, Take-Two Interactive, Sandisk, Albemarle, Roku, Snap, Coeur Mining, Sanmina, Cleveland-Cliffs, and SiTime.

It's human nature to feel good about buying a stock when it's at or near its lows and then watching it climb. Yet the reality is that other investors using different strategies have likely made more money.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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December 10, 2025 14:49 ET (19:49 GMT)

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