Record highs are what bull markets do, so why try to avoid buying high? If you wait for a 20% drop, you could still pay more than what you'd pay now.
Stock traders take a break on Oct. 14, 2008, outside the NYSE as U.S. authorities ready a massive financial rescue package
Stocks have been back to setting all-time highs, and that has some investors nervous.
That includes one of my longtime readers who recently told me he was reluctant to put new money into the market because "the stock market is at a record high." He even pointed to Michael Burry of "The Big Short" fame, who has been warning about another crash.
I understand his apprehension. Buying something at the highest price it has ever traded feels like the exact opposite of "buy low, sell high." But this is one of those areas where our investing instincts can work against us.
For instance, the S&P 500 index SPX recorded last week its 27th record close of 2026. To some investors, that sounds like 27 reasons to be cautious.
I see it differently. And so does the data.
Record highs are what bull markets do
Here is the first thing investors need to understand: all-time highs aren't rare.
Dimensional Fund Advisers did a study on this. Going back to 1926, its data showed a new all-time high occurred every six weeks. That makes sense when you think about how markets work.
The S&P 500 has compounded wealth for generations because American companies grow their earnings, become more productive and create more valuable businesses. A market that trends higher over decades must spend a lot of time making new highs along the way.
It cannot rise 100% without first rising 10%, 20%, 30% - and eventually breaking through its previous records repeatedly. Yet many investors tend to interpret those records as warning signs.
I wrote about this same phenomenon in early 2024, when the S&P 500 finally broke through its previous record. That felt scary, too. The index had just emerged from the 2022 bear market, interest rates remained high, and many investors thought the new high was a great opportunity to take profits. Yet over the following 12 months, the S&P 500 returned 24%.
And that happens more often than you'd think.
Buying high has historically worked
Here is where things get counterintuitive.
Buying at record highs has historically produced very good returns. History shows the S&P 500 was higher one year after hitting a record 81% of the time, with an average one-year return of nearly 14%. Extend the holding period to five years, and stocks were higher 86% of the time, with annual returns of 10%.
None of this means stocks cannot fall from here. There will be another 10% correction and eventually another bear market.
The problem is that nobody knows when. If you're waiting for a 20% crash, the S&P 500 could rally another 30% before it arrives. You could correctly predict the next bear market and still end up buying stocks at a higher price than they trade today.
And that assumes you have the stomach to buy when the headlines are screaming that things are about to get worse. That's the hidden cost of waiting for the "perfect" entry.
Why I'm adding risk now
There is another reason I'm comfortable putting money to work.
The market recently produced a William O'Neil-style "follow-through day," one of the signals I watch following corrections to determine whether institutional buyers are returning. Investor's Business Daily identified Aug. 4 as a follow-through day for the S&P 500, confirming a new market uptrend.
I don't think it's a green light to go all-in. Follow-through days fail. All-time highs fail. And even healthy bull markets routinely experience nasty corrections.
But investing is about stacking probabilities in your favor.
Right now, the long-term trend is higher. The S&P 500 is making records. Corporate earnings have remained strong, with roughly 85% of reporting S&P 500 companies beating estimates this earnings season. Inflation data also cooled enough to reduce pressure on the Federal Reserve to raise rates.
So, I'm gradually deploying capital. I'm still buying shares of "toll taker" companies, like those of Alphabet $(GOOGL)$ and Amazon.com (AMZN), while also looking further down the artificial-intelligence supply chain at businesses supplying the electricity, infrastructure and equipment this build-out will require. That includes a new position I'm buying in my own portfolio this week that fits directly into one of my highest-conviction themes for the next 18 months.
I'll reveal the company and my full thesis, along with five other stocks currently on my buy list, in the next issue of Let's Analyze on Substack.
Could I get some of these stocks cheaper during the next correction? Absolutely.
And I understand why waiting for the perfect entry can feel prudent. Sometimes it is. But history shows that sitting on the sidelines simply because stocks have never been higher can be far more expensive than buying at the top.
Robert Ross is the founder of TikStocks and author of "A Beginner's Guide to High-Risk, High-Reward Investing" (Adams Media, 2022). A former chief equity analyst at Mauldin Economics, Ross writes the investment newsletter Let's Analyze on Substack and hosts the weekly "Room to Run" podcast. Disclosures: Ross owns Amazon, Microsoft, Alphabet and Apple shares.
-Robert Ross
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