How to steel yourself to buy at new all-time stockmarket highs

The US stockmarket has hit a new all-time high. Instinct may be telling you not to buy. But you should resist that instinct, says Dominic Frisby. New highs mean a bull market, and that’s a time to buy.

Traders at the New York Stock Exchange © Getty Images

US stocks have hit another all-time high

Traders at the New York Stock Exchange © Getty Images

How hard is to buy something when it is at all-time highs?

Our every instinct tells us not to do it.

You're paying too much. It's going to crash. You'll get your fingers burnt.

It's so obvious.

Don't dive in. Wait for a pullback!

But such instincts are misplaced.

Don't trust your gut

In fact, such instincts are our worst enemy. They are part of the "wall of worry" that you have to get over if you're to fully enjoy and benefit from a bull market.

The secret of investing is simple: you need to find a bull market and be long. Everyone is a genius in a bull market.

Of course, there's the fear that this bull market isn't real. It's a bubble. But you know my definition of a bubble a bubble is a bull market in which you don't have a position.

You keep reading the stories about why it's going to crash. But the bears always make the headlines;bad news sells better than good news. We're hardwired to respond to bearish stories it's part of the human instinct to protect against risk.

Meanwhile, the market carries on going up and you're on the sidelines. The further the market goes up, the louder the cries of "bubble!" get. Then eventually the market does go down and the bears are all hailed as geniuses.

It's all noise. You want to be long in a bull market and you want to be out in a bear market or you want to be short.

And do you know what? Things only break out to new highs in a bull market; they don't break out to new highs in a bear market. So if something is breaking out to new highs, then that, by definition, means it's a bull market. In a bull market, new high follows new high.

And yet it's so damn hard to buy new highs!

In a bear market things break down to new lows. It looks cheap. You take the contrarian trade. "Look at the value I'm getting here!", you think. But do you know what comes next? New lows. In a bear market, new low follows new low. You want to be short.

A long and painful story of ever-higher new highs

Back in 2013, the S&P 500 broke out to all-time highs. All that pain from the financial crisis still lingered. Buying the new high seemed like insanity. We were going to get another 2008 any day that was the general feeling.

But do you know what followed that all-time high? Another all-time high. And another. And another. Day in, day out. Week in, week out. Three years of all-time highs.

In 2013, the S&P 500 was below 1,600. Today it's over 3,000. Today, 1,600 feels very cheap. It didn't then. But I bet you wish you bought it.

In 2015, we got a wobble. But then what happened in late 2016? Another all-time high. Then, we were around 2,200. It feels very cheap today; it sure didn't then. US stocks were a bubble. Everyone could see that, surely?

What came next? All-time highs. Nearly three years of them, before a 12-month period of wobbling and volatility.

So here were are in late 2019, and what has just occurred in the US stockmarket? Yup. The S&P 500 has just broken out to new highs. There was some round-number-itis at 3,000 perhaps six months' worth but we have just broken above. We are within touching distance of 3,050.

The Nasdaq 100 and the Russell 3000 have both also closed at new all-time highs.

New all-time highs are not characteristics of a downtrend. They're characteristic of an uptrend, of a bull market. And in a bull market you want to be long.

I can find a million reasons why the US stockmarket should go down an eccentric president, trade wars, excess leverage, out-of-control money supply, changing demographics.

Whatever. The market is going up. That's all you need to know.

Who knows? In three years' time, 3,050 on the S&P 500 might look as cheap as 2,200 does today. We might have round-number-itis at 4,000.

Or, in three years' time, the S&P 500 might be back at 2,200. I doubt it, but I don't know.

But I do know this: all-time highs lead to more all-time highs. Buying new highs is a better strategy than buying new lows.

For all its many flaws the US stockmarket is in a bull market. And in a bull market you want to be long.

There will come a day when the all-time high is the final all-time high. And that's the all-time high we all live in fear of buying.

But the nature of bull markets is that you get lots of all-time highs before the last one.

Is this week's all-time high the final hurrah? Or the first of many?

Dominic Frisby's new book Daylight Robbery How Tax Shaped The Past And Will Change The Future is available at Amazon and all good bookshops with the audiobook, read by Dominic, on Audible and elsewhere. If you want a signed copy and what could make a nicer Christmas pressie? you can order one here.

Recommended

Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022
Tech stock crash – dotcom bust 2.0 is upon us
Tech stocks

Tech stock crash – dotcom bust 2.0 is upon us

It’s carnage in the tech sector as the market crashes. But that spells opportunity for canny investors, says Matthew Lynn
19 May 2022
The tech-stock bubble has burst – but I still want a Peloton
Stockmarkets

The tech-stock bubble has burst – but I still want a Peloton

Peloton was one of the big winners from the Covid tech boom. But it's fallen over 90% as the tech stock bubble bursts and and everything else falls in…
19 May 2022
Investor optimism ebbs in Indian stockmarkets
Emerging markets

Investor optimism ebbs in Indian stockmarkets

India’s BSE Sensex stockmarket index has fallen by almost 8% so far this year. Interest rates are on the rise, and foreign investors have been selling…
18 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022