A key investment mantra is “buy low sell high.” Based on this key mantra, it is best to buy investments at low prices in order to sell them at higher prices. This is a quality investment strategy for generating positive returns. The Standard and Poor’s 500 Index (S&P 500) closed the first quarter of 2024 at a record high–5,254.35. Does hitting an all-time high price indicate high prices according to the key mantra?
It can be human nature to get a little nervous as markets hit all-time high prices. However, that doesn’t necessarily mean it is a bad time to invest. There are two primary reasons to not shy away from investing at all-time highs:
- Momentum. All-time high prices can indicate the ongoing momentum from a bull market. During a bull market prices climb on the back of many different factors, including improving economic conditions, corporate strength and prospects for future growth.
- Time is on your side. Investing for the long-term often means the best decision you can make is to invest at any time, no matter where prices are. History shows that even market prices that seem like short-term, inopportune investment opportunities can turn out to be strong investment opportunities in the long-term.
Momentum
Momentum can turn new market highs into market floors. The chart below from J.P. Morgan Asset Management highlights the number of days the S&P 500 closed at all-time highs, as well as the percentage of these times the new highs acted as a market floor. A market floor is defined as an all-time high from which the market never fell more than 5%.
The S&P 500 has closed at an all-time high 6.6% of days since 1950. All-time highs are indicated in green. A couple observations: 29.9% of these green dots actually represented market floors, indicating the market rose from these levels rather than fell measureably. Second, many of the green dots have been surpassed over time by a large margin.
Time is on Your Side
There are many excuses not to invest: recession, economic concerns, political environments, conflict, not to mention seemingly high prices. Don’t let these fears stop you from participating in investment returns that will keep you on track for long-term investment growth.
Many of us remember the financial crisis of 2008 that sent prices down. The short-term impact of investing at the short-term market high in October 2007 was undoubtedly painful. However, if an investor stayed disciplined and continued to invest during the full market cycle, the money invested in October 2007 would now be up over 230%. In other words, $10,000 invested in October 2007 would now be worth over $23,000.
A more recent example is investing prior to the Covid crash of 2020. If you invested just prior to the market fall in 2020 (a little over four years ago), your investsment would be up over 50% despite riding the market down before recovering.
You might be thinking, “But wouldn’t it have been way better if I waited a short time to tke advantage of the lower prices?” Easier said than done. Identifying low prices is always a lot easier looking back than it is when they are happening. Don’t forget about those 29.9% market highs that actually represented relative floors. A steady strategy of investing over time pays off. Don’t let new market highs make you miss out on long-term market returns.
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