By Steven Russolillo

James Dimon can savor his martini this weekend.

Saturday marks the first anniversary of the J.P. Morgan Chase & Co. boss's big bet on the bank's stock. With the market down more than 10% at this point last year and J.P. Morgan shares down 20%, Mr. Dimon bought $26.6 million worth of his company's shares.

Mr. Dimon's purchase marked the bottom in bank stocks and the market overall, and the start of a strong rally, especially in bank shares. The S&P 500 has surged 26%, including the sharp postelection bump, and hovers near record highs. Financials have been the best-performing sector, up more than 40%. J.P. Morgan itself is up 62% since Mr. Dimon added to his already substantial holdings.

The trade earned the CEO a roughly $17 million paper profit.

If the eight-year bull market has taught investors anything, it is that "buying the dip" has been an extremely profitable exercise. The S&P 500's 11% drop at the beginning of last year was fully recovered by the end of March. And after that, there were two separate instances in which the S&P 500 fell 5%; one was in June and the other was before the election. Both times, the market regained its losses within weeks.

An even longer time frame tells a similar story. Since Black Monday in 1987, the S&P 500 has suffered 21 separate pullbacks of at least 10%, according to Strategas Research Partners. Those declines include the bursting of the tech bubble and the financial crisis as well as other, non-bear-market-related declines. Collectively, these pullbackshave averaged about a 19% decline and have lasted roughly three months. The financial crisis as a whole was an anomaly, with shares falling more than 50% and taking six years to recover.

The recovery, whenever it comes, is usually strong. Following all but one of those 21 pullbacks, the S&P 500 gained more than 10% just three months later, averaging a 16% gain. "These are buying opportunities," says Strategas analyst Nicholas Bohnsack. Even during the financial crisis, there were several dips worth buying.

There have been no dips to buy on recently. Through Wednesday's close, the S&P 500 went 82 trading days without a one-day drop of at least 1%, the longest such streak since 2006, according to Bespoke Investment Group. The CBOE Volatility Index, or VIX is around 11, below all but 1% of readings throughout its history.

It is inevitable volatility will pick up again. And when it does, buying the dip will likely be a fruitful exercise. Just ask Mr. Dimon how that has worked out.

Write to Steven Russolillo at steven.russolillo@wsj.com

(END) Dow Jones Newswires

February 09, 2017 13:23 ET (18:23 GMT)

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