Is the market going to fall?
The answer to this question is yes, of course. The real question though is ‘when is it going to fall?’. That’s the question I cannot answer.
I do know, however, that it isn’t necessarily going to suddenly fall simply because it just set an all-time high.
Semantically, it’s clear what an all-time high means. But what does it actually mean? It’s worth thinking about it as all-time highs are psychologically important.
When the market hits an all-time high we are able to say, once again, that buy-and-hold investors have never permanently lost money in the stock market. As Matthew Rothman said below, it doesn’t matter what date you bought, if you had held until today, you would have made money. That is obvious you might say. I say, wow, what an incredible mind-boggling fact.
Another thing to know about all-time highs is that, because stock markets mostly go up, all-time highs are perfectly normal.
Ben Carlson wrote in a blog post in 2014:
“But all-time highs are perfectly normal in the stock market. Since 1950 there have been over 1,100 new all-time closing highs in the S&P 500. That’s 6.8% of all trading days or roughly 1 out of every 15 days the market is open that it’s closed at a new high level.”
The first all-time high after the financial crisis occurred in March 2013. Here is a chart, courtesy of Michael Batnick, showing the S&P 500 since that first all-time high. The red marks the subsequent all-time highs.
That’s a lot of red.
The worst thing you can ever do as an investor is mistake the perfectly ordinary temporary losses as permanent losses of capital. The stock market again and again proves that losses are just an illusion.
As Nick Murray writes ‘the equity market cannot be consistently forecast, much less timed. The only way to be sure of capturing the full permanent return of equities is to remain fully invested during their temporary declines’.
Know this and you will do better than almost every other person around you.