New Highs, Time to Sell? My Shocking Answer...
Friday, November 25, 2016 5:45
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It was all over the news…
“For the first time since 1999, all four major stock indexes hit all-time highs on the same day.”
I got calls from coworkers, family members, and good friends. They were all worried.
“This feels like a bubble,” they all said. “Is it time to sell?”
NO. It’s not.
Two reasons why:
| 1. | This is not 1999… People are fearful today, not wildly optimistic. And more importantly, |
| 2. | Stocks actually perform better going forward after hitting new highs, not worse. |
Let’s look at both of these answers a little closer…
For the first one… Look, we’ve had two weeks of optimism in the stock market after the election. But that’s about it. Big deal.
Market peaks take years to get here… not two weeks.
Think about housing prices during our last bubble. It took years of wild optimism in real estate before the peak arrived. I don’t feel that wild optimism in stocks today. Investors are generally still fearful. The phone calls I got are a perfect example of it.
My second point today is the shocking one: Stocks perform fantastically after hitting new 12-month highs.
We crunched the numbers. And the results were amazing.
You REALLY want to own stocks after a new 12-month high… And you really DON’T want to buy stocks after a new 12-month low.
This table sums it up best. It shows the return 12 months after a new 12-month high or low. Take a look…
|
Since 1928
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12-Month Return
|
% of Time
|
|
|
After 12-month high
|
7.3%
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31%
|
|
|
After 12-month low
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2.8%
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11%
|
|
|
Not a new high or low
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4.4%
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57%
|
|
|
All periods
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5.1%
|
100%
|
|
|
S&P 500 compounded annual gains
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|||
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Based on monthly data, not including dividends
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|||
Most people don’t want to believe these results…
They think a new low is an opportunity to buy and a new high is a time to sell.
But listen, my friend, the numbers aren’t lying…
The future could be different than the past, of course. But we’re talking about 88 years of history here.
So tell me, do you think that 88 years of history is wrong? Do you think that the way stocks have behaved over the last 88 years is going to change – starting today?
If you believe that buying stocks at new highs is bad and buying at new lows is good, then I urge you to look at that table again.
Did you study it?
Now let me ask you again, do you still believe buying at new highs is bad and buying at new lows is good?
It might take a while for you to finally see the light. But once you believe me, a great sense of calm should come over you…
You are “one up” on the world. You now know that new highs are more than OK. You know that new highs are actually good.
You know that new highs are not a reason to panic… They’re far from being a reason to panic. They are (shockingly) the best time to own stocks.
So yes, my friend, the stock market hit a new all-time high. Yes, the four major stock indexes all hit all-time highs on the same day – something that hasn’t happened since 1999. And yes, 1999 was near the end of the great stock market boom. That’s all true.
But just because stocks are at an all-time high doesn’t mean you need to panic. Remember… stocks deliver their best 12-month performance after new 12-month highs.
Good investing,
Steve
Source: http://www.stansberryresearch.com/dailywealth/3409/new-highs-time-to-sell-my-shocking-answer-
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