All investors have to do is buy low and sell high to make money over time. It’s simple enough in theory. Yet so many people buy stocks and sell them at a loss if and when the price goes lower. And many investors use a stop-loss to prevent what looks like an error from interrupting years of would-be gains in the future.

“Buying the dip” or “buying on pullbacks” is when investors decide to buy into (or buy more) stocks and indexes after they have been sold down. Whether this applies to a stock market crash, a bear market (20% or more) or a garden variety pullback (10%) will depend somewhat on each investor’s own interpretation. What is not up for interpretation is that Goldman Sachs currently sees the chances of a major bear market as being quite low.

According to Goldman Sachs, investors should not use the recent sharp sell-off of early August and the sharp recovery as a reason to avoid stocks. Goldman Sachs has opined that the speed and reasons for the August drop signal that the macroeconomic backdrop is becoming more fragile. The firm also opines that it’s not time for investors to avoid stocks even as equity declines are becoming more likely.

Many investors were spooked and shaken out of the market after equities fell a sharp 8%. According to Goldman Sachs’ Christian Mueller-Glissmann, this may have been a warning shot. The markets have recovered handily since those lows — with the Dow and S&P 500 hitting record highs even when September has historically been a weak month for stocks. The message here is that buying these dips could be an opportunity. Mueller-Glissmann said:

At this point we would want to buy the dips as they occur.

Mueller-Glissmann’s team at Goldman Sachs currently sees the likelihood of a major bear market in equities, meaning a drop of 20% or more over 12 months, as well as the risk of a shorter-term correction of only about 10%. This is despite slowing growth and slightly elevated stock valuations.

Counterbalancing the negative forces are “positive equity price momentum” being supported by “still reasonably solid macroeconomic conditions.” Mueller-Glissmann further added:

A strong positive trend in equities tells you the risk of an imminent bear market is low, because it will take time for macro conditions to deteriorate.

A key driver ahead is that the momentum of inflation has been falling for over a year. Another driver is the US Federal Reserve having reduced its policy rate in late September. That move indicated to the team that the Fed is increasingly focused on economic growth versus stamping out inflation (at all costs). With a scope to reduce interest rates, it means more rate cuts are expected.

As for the ultimate “buy the dip” mentality, Mueller-Glissmann almost sounds like the prior theory of “the Federal Reserve put option” is in place. He said:

You can have a correction, but most likely the central bank will step in and buffer the equity market and the economy.

Before blindly chasing any calls to buy dips or to sell using stop losses, remember that there are many ways to invest for the long haul. Buying any dips or any market peaks in any of the major U.S. equity indexes has proven to result in higher prices down the road. It’s the time value of money and “time in the market” versus “timing the market” that has won. Then again, using this philosophy in individual stocks can prove to be fatal to some investors by averaging into stocks at lower and lower prices when their fundamentals do not improve.

The opinions and views outlined herein were taken from Goldman Sachs Insights. They are not to be interpreted as investment advice from Tactical Bulls and these views may not unilaterally align with the views of Tactical Bulls. As a reminder, Goldman Sachs caters solely to wealthy individuals and to institutional investors.