Buying Stocks At Record Highs Works Until It Doesn't
History shows that as a rule, there’s no reason to avoid equities as they surge to all-time highs. But there are always exceptions.
First comes the buying frenzy. Then comes the buyer’s remorse.
Photographer: Daniel Roland/AFP via Getty ImagesThose who bought stocks as they soared to new records last week amid rising optimism for a trade deal are probably suffering buyer’s remorse after President Donald Trump said the U.S. hasn’t agreed to a rollback of tariffs on China. Are those regrets warranted?
As the Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite Index all set new marks last week, there were no shortage of studies released that crunched data going back to the 1920s to prove that purchasing stocks when indexes hit record highs generates better risk-adjusted returns than simple buy-and-hold strategies. As Meb Faber — the chief investment officer at Cambria Investment Management, who conducted one of the studies — pointed out, while buying at the highs isn’t really “a system anyone would want to implement,” the data is “an acknowledgement that all-time highs are nothing to be afraid of.”