We recently set four all-time record highs on four consecutive days for the US stock market. When this happens, I always get asked questions like “Should I be buying when the market is so high? Shouldn’t I just wait until the market goes down again?”. Reasonable questions!
BUT HERE’S THE RUB. There’s a good chance that, despite currently being at a record high, the market will ALSO never be this low again! It’s only high compared to the PAST. It might be low compared to the FUTURE. And the future is what we care about.
To get these statistics I downloaded the monthly S&P 500 pricing going back to 1950. From then until now there have been 889 total months. During those months we have broken the all time record high in 235 of them! That means in any given month, there’s about a 26% chance that we’ll see an all time record high.
Now let’s look at JUST those 235 months where the market has never been higher. How many of THOSE represent a record LOW going forward? It’s 63. So that means if we’re currently in a record high month (like we are right now) there’s a 26% chance we’re also in a month where the market will never be this low again in the future.
I wish I could crunch these numbers some more and tell you some clever strategy about when to enter and exit the market to always make money. But I can’t. All such strategies have been tried and failed. That’s the bad news. The good news is that the optimal strategy is even simpler: Always Be Buying. Buy low, buy high. Buy and hold forever (or at least until you can live off your wealth). When you stop speculating about the short term volatility of the market and instead focus on acquiring more and more shares over time, you’ll start to build real wealth.
“Buy low, sell high” is terrible advice. The advice that will make you rich is “buy low, buy high”.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Jeremy
