Should You Buy An All-Time High? – Of Dollars And Data

To wrap up the first edition of 2021, we feature a second piece from the Ritholtz stable – Nick Magguilli’s blog on whether we should buy an All-Time-High? Given how often we get asked this question these days, we featured our answer in one of our recent newsletters. In this newsletter, we highlighted the futility of timing one’s investments in a portfolio of fundamentally strong companies such as the CCP. In other words, if the underlying cashflows of the company are at all time highs, share prices reflecting that with all-time highs shouldn’t be a source of fear for the investor. Indeed, for companies which consistently compound their cashflows, share prices are likely to be at all time highs a significantly large percentage of times. In this blog, Nick goes one step ahead and shows why investing at all-time-highs can actually be better than waiting for a crash. The blog explains this using some clever charts and indeed cites another study by Meb Faber “In it he compares “Buy and Hold” to a strategy that only invests in stocks at all-time highs and switches to bonds in all other months.  Surprisingly, the strategy that only bought at all-time highs had better performance and lower volatility than “Buy and Hold”!
However, as he warns himself that this is a statistical study and should not be construed as investing at this all-time-high is a good idea.
“Regardless of which risky asset classes you have in your portfolio, as this post illustrates, buying near all-time highs should not be a cause for concern.  Of course, you may get unlucky with an asset class during a particular period of time, however, if you own a diversified portfolio, the impact of such an occurrence should be minimal.
As investors our goal is to grow our wealth so that we can live the life we want.  Unless you are investing your entire nest egg into one asset class at a market peak, it is unlikely that buying near an all-time high will ever prevent you from living the life you want.  With that in mind, my best suggestion is to just get invested and let the chips fall where they may.  After all, there is only so much in our control.”

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