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Stocks are in a new bull market.
But not everyone has taken advantage. Part of that is because “stock market bears” were loud going in 2023 after a brutal bear market in 2022.
These “pessimists” were loud and convincing. And they sounded smart.
And now, they’re probably telling you you’ve missed the bull run…
… but let me show you why that’s wrong, too.
The Top Right Corner of the Chart
I had a member of my Patreon investment research service pose this question last week:
I understand where he’s coming from. The stock we were talking about is Shopify (SHOP), in which I opened a small, speculative trading position with 1% of my portfolio a week earlier.
Shopify shares had already risen 75% in 2023 before I bought any shares. That may lead some to think all the gains had already been made in the stock and we were buying “the top.”
Well, in the short-term that has not been true as shares are +10% in the 10 days since I bought it…
…but the idea that buying a stock because the stock price is in the top right-hand corner of the chart is also misguided.
Better Late than Never
Now don’t get me wrong; Shopify is a high-risk, high-reward investment.
Shares are very volatile, and if you don’t use proper risk management to limit your downside you can lose money in a hurry.
But the idea that an investor has “missed it” if a stock is at a 52-week high couldn’t be further from the truth.
For instance, let’s look at Apple (AAPL). Between January 2010 and June 2013, shares rose +134%:
That’s a pretty good gain for a three-year period. In fact, it nearly tripled the S&P 500’s 52% return over the same time frame.
But a novice investor might think the stock has run too far and they’ve “missed it” and are buying near the highs if they bought shares in June 2013. Afterall, shares had more than doubled in the last three years!
Well, that would be wrong as Apple shares rose another 229% between June 2013 and June 2018:
But after the 229% gain, an investor certainly would have “missed it,” right? I mean, the stock was +581% since January 2010…
…meaning there likely weren’t any more gains left.
But that is also wrong. In fact, between June 2018 and present, Apple shares rose another 296%...
…bringing the total gain since January 2010 to 2,572%.
“I Missed It” Isn’t an Investment Thesis
Now don’t get me wrong; not every stock is Apple.
There will be plenty of companies who saw their share prices balloon in 2020 and 2021 that will never sniff their previous all-time highs.
But even if you look at a broad index like the S&P 500, buying at-or-near the highs is not a recipe for disaster.
Since 1950 the S&P 500 has set 1,130 all-time highs. That’s an average of over 16 every year…
New market highs are not as meaningful as some people may think. Often they have to do with continued growth of the economy and rising earnings.
And as an investor, they’re not even that meaningful when looking at long-term returns. For instance, here’s how you would have done if you had invested only at all-time highs in the S&P 500 Index from 1950-2019.
Some would consider this the “worst” possible time to invest. But the chart shows your returns would be close to the average return of the index for one-, three- and five-year periods.
Buy High, Sell Higher
One of my first investing mentors made a point of buying stocks near all-time highs rather than all-time lows.
At the time I thought he was crazy. But the longer I’ve invested, the more I’ve realized that anchoring your thinking to “high stock price = bad” is foolish.
Because as the data shows, even buying at the highest of highs ends up as a rounding error when looking at long-term returns.
So don’t be scared by stocks near 52-week highs. Because one thing successful investors never say is “I missed it.”
As in the end, you can still buy high and sell higher.
Stay safe out there,
Robert