The conventional wisdom of investing—buy low, sell high—has long guided many investors towards strategies aimed at capitalizing on market downturns and peaks. However, with the S&P 500 reaching 43 all-time highs in just a few months of 2023, many investors find themselves grappling with whether now is a good time to enter or remain in the market. The reflexive hesitation to invest at elevated prices is rooted in a fear of buying at the top, which can lead to concerns about receiving inadequate returns if the market subsequently declines. Nevertheless, historical data suggests that the frequent occurrence of market peaks should not deter investing; in fact, there may be merit in revisiting the traditional buy low and sell high mindset.
As of the third quarter of 2023, the S&P 500 has closed at a new all-time high on approximately 22% of trading days, prompting questions about the market’s capacity to sustain this rate of growth. While predicting future market movements is fraught with uncertainty, historical performance offers valuable insights. Since 1928, returns for all quarters have averaged positively, with the fourth quarter achieving particularly robust growth of 2.9%. It is crucial to acknowledge that while not every quarter returns profits, the overarching trend heartens long-term investors. Market history provides perspective, particularly in view of external factors like an impending presidential election, which some may presume to negatively impact investor sentiment. Data points to a contrary conclusion: Political turbulence has not, historically, hampered gains in the fourth quarter, suggesting that apprehensions may be unwarranted.
Despite the data advocating for investment even at peaks, psychological barriers often impede decision-making. Investors may experience “financial FOMO,” a compelling fear of missing out. Sellers might hesitate to act, fearing that prices could rise even further, much akin to a game show contestant hesitating to cash out for a potentially greater prize behind a mystery door. The timing for selling investments is a deeply personal choice, influenced by various factors such as retirement timelines and individual risk tolerance. While emotional impulses can cloud judgment, meticulous planning and communication can help investors navigate these moments with clarity and confidence.
Interestingly, an analysis of market behavior following all-time highs reveals that buying at these peaks often results in superior long-term returns. Data from the S&P 500 indicating performance from 1988 to 2023 has shown that investing on the days when new all-time highs were established frequently led to better average returns over one, two, three, and five years compared to investing at other times. This counterintuitive finding challenges the time-honored strategy of avoiding investments at high prices, suggesting that a shift in thinking might be beneficial—perhaps in modern investing, it’s less about buying low and more about seizing opportunities at high points to realize even greater gains.
This newfound recognition aligns with the fundamental understanding that markets, over time, tend to climb despite short-term fluctuations. Analysis indicates that the occurrence of new highs, rather than signaling impending downturns, can often imply that further growth is on the horizon. Thus, rather than viewing all-time highs with trepidation, investors might benefit from reorienting their perspectives. Instead of fixating on market timing, it may be more rewarding to adopt the adage “time in the market beats timing the market.” This implies that consistent investment over time, regardless of market peaks, generally yields better results and promotes wealth accumulation.
In conclusion, while uncertainty is inherent in financial markets, historical trends convey a somewhat optimistic narrative that can bolster investor confidence. The frequency of market highs is more normalized than it seems, and evidence suggests that these peaks do not herald diminished future returns. As investors reassess the validity of the traditional buy low, sell high approach, particularly in today’s contexts marked by inflation and economic shifts, a more flexible mindset may be necessary. All-time highs should not be feared; rather, they might signal prime opportunities for growth, affirming that embracing the market’s upward trajectory, beyond just reactive strategies, could lead to more favorable investment outcomes.
