3 Reasons to Buy High and Sell Higher

Amid a climate where market peaks often prompt investor caution, “3 Reasons to Buy High and Sell Higher” challenges conventional wisdom.

This article investigates the robust performance of global markets in early 2024, particularly the record-breaking achievements of the global and US equity markets. With trillion-dollar tech giants propelling US equities and a promising economic outlook, it’s tempting to consider a sell strategy. Yet, we present three reasons to maintain or even increase your stock positions, backed by historical data and long-term investment strategies.

This article offers an insightful analysis for navigating the highs of the market.

 

Rising Markets and the Surge in Global Equities

 

We’re just over a month into 2024 and after a strong 2023, global markets have shown no sign of slowing down. Global equities have hit a fresh record, surpassing the previous high in January 2022. This has largely been driven by the US-listed equities which represent ~70% of the total global market.

The US equity market recently set its own new high largely driven by investor enthusiasm for a handful of massive (now) trillion-dollar tech companies – Apple, Microsoft, Alphabet (owners of Google), Amazon, Meta (formerly Facebook) and Nvidia. Combined with signs that the US economy is actually in decent shape, as well as hope that the Federal Reserve will cut interest rates now inflation is well on its way down, this has sent equity markets to new heights.

Therefore, with the global stock market as high as it’s ever been, the question then has to be “Should we stop buying stocks, and moreover, should we look to sell?”

In short… the answer is no! or at least, not necessarily.

While even the most veteran investors hold a shaky hand over the buy button a few seconds longer when buying at new highs, the fact is we must remember 3 important facts:

 

1.      If the outlook has genuinely improved, there’s no reason to think the market is now overvalued.

 

We must ask, “Why is the market at all-time highs?”. Is it due to overenthusiasm and greed (good reasons to potentially sell) or driven by an improving outlook and steady economic growth?

Though, this should be an ongoing question, a new market high shouldn’t necessarily make this question more pertinent.

 

1.      Time in the market > timing the market

 

There is no crystal ball and timing the market with any kind of consistency is near impossible unless you’re a multi-billion-dollar hedge fund with a bank of 100+ of data analysts – and even then, it’s tough. The fact is at any given time there is likely a 20%+ drop coming down the line, the issue is when. Sell too early and you may well miss a substantial run-up in excess of any potential drop i.e. you sell, the market goes up 30% before the 20% drop. Then when do you buy back in? The world is scary after a 20% drop, and it could recover much quicker than expected and before you swing the bat the market is off to new highs all over again.

If you’re a long-term investor, the game can be simple: buy and wait until you need the money. That’s it. Anything else will disturb the beautiful compounding return markets provide.

And if you’re not a long-term (5+ year time horizon) investor, you shouldn’t be buying stocks anyway.

 

2.      Investing at all-time highs is a surprisingly good strategy.

 

This seems counterintuitive but buying the market when it hits a new high has done well on a historical basis. The US equity market has hit a new high over 1,200 times since 1950, and in a study for the period from 1950 to 2019, it was shown that investing in the US market at a new fresh high would on average net more or less the same average return over the following 1-, 3- and 5-year periods as investing at any other time. It also has been shown to not increase the risk of an imminent downturn. An investor would be down more than 10% a year after only 6.5% of market highs. Stretch this to 3 years after and it is 1.6%, stretch further to 5 years and on 0 historical occasions has an investment at all-time highs been down over 10%.

Long-term investing works, even at market highs.

 

So, what to do?

 

Same as always. Markets hit new highs because that’s what they are supposed to do – pushed up by a steady growth in global GDP feeding into earnings while dividends + buybacks provide a steady flow through to shareholders.

That is not to say markets won’t go down, volatility is the price of long-term gains, but that new highs are nothing to fear.

While the best time to invest may have been a year or two ago, the next best time is now.

If you’re inspired to navigate the thriving market peaks with confidence, Wise Investment is here to guide your journey. Harness the potential of your investments with expert insights and tailored strategies that align with your long-term goals.

This article is intended for information only and does not constitute advice. Wise Investments Limited is authorised and regulated by the Financial Conduct Authority, FCA no. 230553. Registered in England 4970458.