Good afternoon everyone, I hope you had a good weekend!
We ended last week on a high in the stock market, with the S&P 500 hit a new All-Time High (ATH) again, recovering back from the tariffs downturn just 3 months ago. If you took action back in April, congratulations!
Now I’m sure some of you might be thinking - “Isn’t it too expensive to buy now?”
That reaction is completely normal. We’re human, and ATHs can feel like we’re buying at the top of the mountain.
But let’s take a step back and look at what history tells us.
What Happens After All-Time Highs?
The 2022 bear market was one of the longest ones (~1 year) in the past 5 years, where we saw the S&P dropped ~28% from its previous ATH. It wasn’t easy to stomach, but by the end of December 2023, it has recovered back.
Fast forward to now: since reclaiming that level, the S&P has rallied (coincidentally) by 28%.
Going back further to COVID where it felt like the world came to a standstill. After that 35% drawdown in early 2020, the S&P recovered its previous ATH within just six months. Sure, there was some choppiness in the following two months, but after that? It was a straight bull run all the way to December 2021.
Here’s the thing - if you kept waiting for the “perfect” entry, you’d have probably missed out on those gains.
The idea is simple: great companies don’t stop growing just because their stock hits a new high. Share prices follow performance. And over time, if a company keeps executing and growing earnings, its stock will keep breaking through ATHs.
In our Buffett Online School community, we focus on spotting these kinds of businesses - solid fundamentals, strong moats, and long-term potential. These are the kinds of businesses that not only recover from downturns, but often come out stronger than before. And when you know how to spot them, you stop fearing ATHs and start seeing opportunity.
A Case Study of 4 Different Kinds of Investors
Now, let’s look at another case study by Schwab Research illustrating why staying invested, even during ATHs can be far more rewarding than trying to time the perfect entry.
They ran a 20-year simulation (2003 - 2022), where four types of investors each received $2,000 annually and deployed it differently:
Investor A - Perfect market timing and invests $2K at the exact bottom of the market every year.
Investor B - Simple-minded investor who just invests $2K on the first trading day of each year, regardless of the market.
Investor C – The polar opposite of A, with incredible bad luck. Invests $2K at the market peak every year.
Investor D – The skeptical one who thinks the stock market is risky. Doesn’t invest in stocks at all and puts the money into T-bills annually.
Make a guess - who came out on top?
Of course, Investor A came out on top with ~$174K.
But let’s be real - can you catch the exact market bottom every single year? That’s 1 out of 252 trading days. It’s practically impossible to do this consistently!
But here’s what’s interesting.. notice how Investor B, whose simply just dollar cost average in, ended up doing almost as well as Investor A, coming out at ~$161K.
And even Investor C, whose consistently bought at the top (also practically impossible), still ended off with ~$141K, just by staying invested.
And Investor D, not investing and staying sidelined in the stock market only netted ~$64K.
There are a few key lessons to takeaway here:
You don’t need perfect timing to succeed.
Even if you buy at the top, high quality and fundamentally strong companies will tend to trend upward over time.
The real risk is not investing at all.
I don’t know where the market is headed tomorrow, next week, or even next month. Anyone who tells you they know this is smoking crack.
But I do know this - Time in the market beats timing the market. Zoom out and focus on the big picture.
I hope this helped you look at all-time highs from a different perspective, and maybe even feel a bit more confident to take action!
Also here’s a picture of me and my dog, Kira for a totally unrelated reason :P
Till the next post, ciao!
Patience builds wealth,Bjorn