Why I Buy Stocks at All Time Highs

0:00The lesson here isn't don't buy individual stocks. The lesson is don't convince yourself you know something about timing the market when you don't. Because the moment you start believing you're smarter than the collective wisdom of millions of investors around the world, all of whom have access to the same information, if not more than you do, you're setting yourself up to fail. This time is different is the most expensive lie you will ever tell yourself. Hello friends, this is Tyler Gardner welcoming you to another episode of your money guide on the side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.

0:43So let's get started and get you one step closer to where you need to be. Hello, everyone, and welcome back to your Money Guide on the Side. I'm Tyler, and if you're new here, this is the show where we talk about money, investing, and why I'll never leave the beautiful state of Vermont for the one and only reason that they don't allow billboards on the interstate. And if you haven't driven from Massachusetts over the border of Vermont and instantly have gone, wow, something's different here, then you're missing out and that's the best advice I've got for you this week. Today's episode has a title that's going to make some of you immediately skip to the next podcast in your queue.

1:18Why I buy stocks at all-time highs. I can already hear the comments. There's a reason this guy's not a financial advisor anymore. He clearly doesn't understand markets, someone tell them the crash is coming, and someone tell them that it's all about timing the markets, not timing the markets. Yeah, I agree with some of what I just mocked. And here's the thing. I might not know where markets are going, as none of us do, but I do appreciate looking at where they've been throughout history and sharing as many fun takeaways as I can with you so you can officially and always choose your own adventure.

1:51It is also precisely why I keep buying stocks when everyone else is paralyzed with fear, convinced they've figured out something the rest of us missed. Quick fun fact, they haven't. This episode isn't really about all-time highs. It's about the single most expensive investing mistake you will ever make, sitting on the sidelines waiting for the right time to invest, while quietly congratulating yourself for being smarter than the market. Again, you're not. And I've got the data this week to back it up. We are going to cover five reasons this week why staying in cash, waiting for a crash, or timing your entry is a profoundly bad idea.

2:31So if you're still here, as always, if you have found this show even remotely helpful over the past few months or weeks, or it's helped you feel even one ounce more confident with your own financial decision making, please consider leaving a review on Apple or Spotify or wherever you listen, as it helps others find the show, tells them what to expect, and it helps me appreciate that the endeavor is actually useful to somebody, somewhere. And as I wrote my master's thesis once upon a time on Dr. Samuel Johnson, who spent nine years of his life devoted to writing the Dictionary of the English Language, I too am mildly obsessed with waking up each day and recommitting to doing something that is of use to somebody.

3:11So thank you for taking the time to write a review, and I appreciate you all. enough Dr. Johnson, let's get into it. Reason number one I buy when stocks are at all-time highs. All-time highs happen way more frequently than you think, and that's actually good news. Let's start with the most uncomfortable fact. Markets spend a lot of time at all-time highs, And I mean a lot. Between 1950 and 2023, the S &P 500 hit an all-time high on roughly 7 % of all trading days. That's about 1 ,300 days. Put another way, if you had a standing appointment to check the market once a week for the last 73 years, you'd have seen an all-time high roughly 350 times.

3:59That's not rare. That's frequent. In other words, dare I be so bold, for a chart that throughout history moves up and to the right, that's normal. And here's where it gets really interesting. From 1975 to 2025, if you bought the S &P 500 only at record highs, your average one-year return was 13.6%. Buy at any other time, 12.9%. So buying at all-time highs actually performed better. Two years later, 27.6 % versus 27.4%. Still better. But here's the amazing stat. The average five-year return for buying at all-time highs, 87.6 % versus buying at any other time, 81.9%. Much better. In other words, buying at all-time highs isn't this dangerous game that many of you believe it is.

4:51It's actually statistically superior, at least since 1975, than waiting for a dip. Now, I think timing the market in general is nonsense, but you get my point. And I know what some of you 2.0 listeners are thinking. What about current valuations? Isn't the market overvalued when it hits all-time highs? For my 1.0 listeners, when random ding-a-lings talk about what's called a valuation, usually, not always, they're talking about what's called a P-E ratio, meaning the price of a stock or an entire index compared to the underlying earnings per share of said stock or entire index. These are the historical averages that loosely people base their under or overvalued commentary on.

5:37And here's some of the data. Since 1980, when the market's price to earnings ratio was above 20, supposedly too expensive for what you were getting with earnings per share, the average five-year return was still 75%. When valuations were below 20, 83%. So yeah, there's a difference. But my guess is that not a single person listening has ever had a genuine change in their life circumstances based on 8 % over five years, let alone realized it had even happened. The it's overvalued crowd has been yelling bubble since Reagan was in office. Meanwhile, investors who stayed the course made roughly 14x their money.

6:19So this is just one reason we don't wait for perfect valuations, as bluntly, they don't exist. Now, I know that some of you also do adhere to some basic mathematical principles, and one that I do appreciate is called reversion to the mean. When something is consistently higher than the mean or average for an extended period of time, time, won't it revert at some point? Yeah, yeah, it will. Or at least that's what the data has told us that far. But when it happens is a complete guess, and trying to time that moment is a fool's errand. So is a crash looming, and are we going to lose all current valuation in the market?

7:00Well, maybe. And also, maybe not. Markets do pull back. They always have. But the problem, once again, is the logic, because you're assuming you know when the pullback is coming. And statistically speaking, you don't. Nobody does. Not you. Not me. Not the guy on CNBC who still believes we're living in an era where a suit and tie make you look like you should be able to tell us what to do with our money and how markets move. Markets hit all-time highs constantly because that's what markets do when economies grow and companies make money. Waiting for a crash means you're betting against the fundamental trajectory of economic progress, and that historically has been a losing bet.

7:42And as I always like to remind, at the very least myself, if we experience massive problems in the economy, and that reflects in the markets, do you not believe that human beings wouldn't rise up to try to fix said problem and thereby create and establish new companies and new entities worth value in this world? But don't worry. If you're still not convinced that you should just start buying today, we've got four more reasons why sitting on the sidelines is costing you a fortune. We'll get right back into it after a quick word from one of today's sponsors. Here is the truest thing I will ever tell you about money.

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9:57Also, the packaging is brilliant. Element comes in tiny stick packs so I can throw five or six in my carry-on when I travel because rule one, don't check bags, and they take up almost zero space. And right now, they're offering a free sample pack with any purchase. So just go to drinkelement.com slash Tyler. That's drinkelement.com slash Tyler. And trust me on the mango chili. Reason number two. The cost of being wrong is enormous. And you're probably wrong. Let's talk about what happens when you try to time the market and fail. Because guess what? Most of the time when you try to time the market, you fail.

10:46We all do. There's a famous study by Charles Schwab, this is a fun one, that looks at five hypothetical investors over a 20-year period from 1993 to 2012. Each investor contributes$2 ,000 per year to the market, but with different strategies. Investor number one, perfect timing Pete, invested at the absolute market low every single year. Impossible, but let's pretend. Investor number two, bad timing Betty, invested at the absolute market high every year. Also impossible, but work with me here, people. Investor number three, dollar cost averaging Dave, invested in equal monthly installments throughout the year.

11:28Investor number four, immediate action Irene, invested the full $2 ,000 on January 1st every year no matter what. And investor number five, cash hoarding Carl, kept everything in cash because he was waiting for the right moment. Guess who ended up with the most money? Perfect timing Pete, in first with$87 ,004. No surprise there. He timed every bottom perfectly, which is about as realistic as me running a marathon in under two hours while eating a croissant and pretending I have two good hips. But here's the surprise. Bad timing Betty, The person who bought at the absolute highs, or according to many of you, the worst time ever to buy stocks, ended up with$72 ,487.

12:13She still more than doubled her money. Why? Because once invested, she just stayed invested. And time in the market beats timing in the market, even when that timing is catastrophically bad. Dollar cost averaging Dave wound up with about$79 ,000. Immediate Action Irene wound up with about$81 ,000. And Cash Hoarding Carl? $51 ,291. Dead last. Not even close. He protected himself right into mediocrity. Literally, any other strategy outpaced him and inflation by a mile. Let me repeat that. The person who invested at the absolute peak every single year still earned 41 % more than the person who sat in cash waiting for the perfect moment.

13:04Now, I get it. Investing at an all-time high feels wrong. It feels like you're buying a house at the top of the market or paying full price for a sweater in July. Quick personal anecdote about the house thing. In 2021, my wife and I wanted to buy a house. This was right around the time where you'd refresh listings every minute, find that new property, race over to get in line behind 40 other cash offers who would offer a 30 % premium over asking, zero contingencies, only to see the property sell for a 50 % premium over asking within about 24 hours. So, we almost didn't buy a house as the housing market was on fire, but we found what worked for us, bought in at the peak, and guess what folks?

13:49After five years, our property has appreciated an estimated valuation by about 50 % or 10 % a year beyond what many were calling another housing bubble. And just like the housing market, when you buy a stock, you're not buying a new car, aka a depreciating asset. you're buying a claim on future corporate earnings. And those earnings historically go up over time. So yeah, you might buy at a local peak. The market might drop 10 % next month. But if you're investing for 10, 20, or 30 years, that short-term dip is completely irrelevant. What matters is that you are in the market at all. And if you're sitting in cash right now, waiting for this right moment, let me ask you this.

14:35What if the right moment was six months ago or two years ago, or wait for it, what if the right moment is right now and you're just too scared to admit it? I'm not judging. I'm just nudging. Because here's what the data shows. The longer you wait, the more it costs you. And I'm not talking about opportunity cost in some abstract theoretical sense. I'm talking about real money, money that could have been compounding, money that could have been working for you while you slept, money that's now just, well, sitting there doing nothing, earning 0.01 % interest in a savings account while inflation eats it alive.

15:07but hey, at least you avoided the risk, right? Reason number three, I buy at all-time highs. This time is different, says everyone ever. If I had a dollar for every time someone told me this time is different, well, I'd have enough money to fully retire and spend the rest of my life walking through the woods in Vermont, occasionally muttering about interest rates to confused hikers, even though that's actually what I do anyway. Now, even though you've heard this before. I'm going to go through it again. It's a brief, non-exhaustive list of times people were absolutely certain the market was about to collapse and that we should all be sitting in cash.

15:451987. Black Monday. The market crashes 22 % in a single day. This is it, everyone said. The end of everything. The market fully recovered in two years and went on to triple over the next decade. 1999 to 2000, the dot-com bubble burst. Tech stocks imploded. This time is different, people said. The internet was a fad. The S &P 500 recovered and went on to deliver 10 % annual returns for the next two decades. 2008, global financial crisis. Banks collapsed. Economy implodes. This time is really different, everyone said. The market bottomed in March 2009 and then delivered one of the longest bull runs in its history.

16:272011, the U.S. debt ceiling crisis. This time is different. It wasn't. 2016, Brexit. This time is different. It wasn't. 2020, a literal global pandemic that shuts down the entire world economy and my local gym. Okay, this time really is different. Nope. Market recovered in five months. Let me put that in perspective. Since 1987, we've had three market crashes, four recessions, two debt ceiling crises, In roughly 47, it's the end of capitalism headlines. And through all that chaos,$10 ,000 invested in the S &P 500 in 1987 grew to over$280 ,000 by 2024. Meanwhile, people who waited for stability are, well, still waiting.

17:14Probably sitting in cash, reading articles about the next inevitable crash, congratulating themselves for being smart. So do not let CNN decide when you invest. They're not financial profits. their entertainers with access to a Bloomberg terminal. Do you see the pattern? Every single time, there's a new reason why the market is doomed. Every single time, people are convinced that this particular crisis is unprecedented, catastrophic, insurmountable. And every single time, the market has recovered and gone on to hit new all-time highs. Now, I'm not saying the market never crashes, because as we just saw, of course it does.

17:50It crashes all the time. Marketers experienced a 10 % correction roughly once every one and a half years on average. It's had a 20 % bear market roughly once every three to four years. It's normal. It's how markets work. Volatility is not a bug. It's a feature. The problem isn't that markets go down. The problem is that you think you can predict when they'll go down and how much they'll fall. And statistically speaking, you can't. Nobody can. So just stay invested. Let me give you a quick personal example. In 2019, I bought 172 shares of Peloton at$29 during the IPO. I was convinced indoor cycling was the future.

18:28Have I mentioned I'm an introvert? By January 2021, Peloton was trading at$160 a share. I sold everything and made$20 ,000 and I felt like a genius. I thought I was the timing guru of the world. And then I made the fatal mistake that every investor who does this makes. I tried to replicate my success, thinking I knew something others didn't. I bought up Snap and Roku and Beyond Meat and Chewy and half a dozen other hot IPOs convinced I had figured out the formula. My score? Zero wins, many, many, many losses. I lost most of that$20 ,000 profit trying to recapture the initial high. And Peloton, as of this recording, though I still love the product and service, it's trading at$7.66 per share.

19:17If I had held on, I would have lost most of my money anyway. The lesson here isn't don't buy individual stocks. The lesson is don't convince yourself you know something about timing the market when you don't. Because the moment you start believing you're smarter than the collective wisdom of millions of investors around the world, all of whom have access to the same information if not more than you do, you're setting yourself up to fail. This time is different is the most expensive lie you will ever tell yourself. Reason number four. Missing the best days is worse than experiencing the worst days.

19:53Here's a stat that should terrify you. If you missed the 10 best trading days in the S &P 500 of the last 25 years, your returns would drop from 9.9 % per year to just 5.6 % per year. That's nearly cut in half. Missed the 30 best days? you basically underperformed a savings account, your returns would drop to around 2 % to 3 % annually, barely enough to keep up with inflation. Let me say this again. Missing just 10 days out of roughly 6 ,300 trading days would cut your 25-year returns nearly in half. 10 days. That's it. And equally fascinating, six of the 10 best days in the past 30 years occurred within two weeks of the 10 worst days.

20:44So if you're sitting in cash during a crash, waiting for things to stabilize before you get back in, odds are you're going to miss the recovery. Let me give you another concrete example. In March 2020, when COVID hit and the market crashed 34%, the single best day in the market's history occurred on March 24th, right in the middle of the panic. The S &P 500 gained 9.4 % in a single day. If you were in cash that day because you were waiting for the bottom or terrified to invest, you missed it. And if you were still in cash on April 6th, you missed another 7%. April 9th, another 7%. You missed those two.

21:23Those are annual historical averages in a day. By the time you felt safe enough to get back in, the recovery was over. And this is the fundamental problem with trying to time the market. You're not just trying to predict when to get out. You're also trying to predict when to get back in. And the data is overwhelming. It's not going to happen. There's a famous Fidelity study that is, in my mind, hilarious, quasi-morbid, that analyzed which accounts performed the best between 2003 and 2013. Guess which accounts won. the accounts of people who were dead. I'm not joking. The best performing accounts belong to people who had passed away and whose portfolios were simply left untouched.

22:06No trades, no panic selling, no market timing, just staying invested. The second best performers, people who forgot they had accounts. Let that sink in. The optimal investing strategy is apparently to die, or at least to be so forgetful that you can't remember your login. Now, I'm not suggesting you fake your own death to improve your returns. And if you do, please don't tell anyone you ever listened to this podcast. But I am suggesting the less you interfere with your portfolio, the better it's likely to perform. The truth, as we've gone over before, is your brain is not designed for investing.

22:41It's designed for survival. And survival in the ancient world meant reacting quickly to threats, avoiding danger, and prioritizing short-term safety over long-term gain. but the stock market doesn't work that way. The stock market rewards patience, discipline, and the ability to sit still when every fiber of your being is screaming at you to do something. So when the market drops 10%, 20%, or even 30%, your brain is going to tell you to sell. It's going to tell you that this time is different, that the crash is permanent, that you need to protect what you have left. And if you listen to that voice, if you sell in a panic and sit in cash, waiting for things to calm down, you're almost certainly going to miss the recovery, which means you're going to lock in losses and miss the gains.

23:26The data is clear. Time in the market over timing the market every single time. And now we'll take a quick break to talk about a sponsor who helps support our mission to keep financial literacy free and accessible for everyone. Every January, we optimize our physical health. New gym memberships, meal plans, tracking our steps, and sleep. We do it because feeling good physically affects everything else in our lives. But when was the last time you gave your financial health that same attention? Not vague goals like save more of my paycheck or invest more in my Roth IRA. I mean actually asking yourself concrete questions.

24:09Am I on track to retire when I want to? Am I overpaying in taxes? Do I have a plan or just a pile of random accounts? Because here's the thing. I get hundreds of emails every week from readers and listeners asking me to help them think through these exact questions. And I want to help. That's why I create free financial content. But I cannot give personalized advice. Your net worth, your retirement timeline, your tax situation, it's way more nuanced than anything I can responsibly address in a newsletter or on a podcast. That's why I continue to partner with FACET. They're actual CFP professionals who build plans for your specific scenario.

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25:45And the final reason, number five, why I like buying stocks, even at all-time highs, doing nothing is still a decision. Let's end with a basic exercise in risk management. Picture a professor. She turns to a class and says, how can you avoid the risk of getting hit by a car while on a bicycle? The class is quick to think of a couple safety features. You could wear a flashy helmet, wear reflective gear, don't cycle on busy roads, don't give cars the finger and smack their window when the cars get too close. Maybe that's just me. Professor nods. Ultimately, someone says, well, couldn't you also just not ride the bike?

26:25Yes, that would in fact avoid all risk of being hit by a car while cycling. But the professor goes on to ask a follow-up question. How would we then avoid the risk of staying at home and not cycling? The class looks up slightly confused. Huh? Well, the professor continues, maybe there's a fire at home. Maybe someone breaks in while you're there. Maybe you trip over something or maybe over time by not cycling, your health deteriorates to a point where you can't cycle and end up with increased risk of insert any health issue here. If you haven't picked up on the punchline, yes, there is risk in action, and yes, there is risk in inaction.

27:05It is just a question of what is the action and what is the risk you're willing to take on. If you invest, you risk having your investments lose value. If you don't invest, you risk having your cash lose value. Sitting in cash isn't neutral. It's not playing. It's safe. It's not waiting for the right moment. It's an active decision to underperform the market. Because here's what happens when you sit in cash. Number one, inflation eats your purchasing power alive. Even at a modest 3 % annual inflation rate, your cash loses half its value every 24 years. So that$100 ,000 you're sitting on today would be worth about 50 ,000 in real terms by the time you're ready to retire.

27:47Congrats, you protected yourself into poverty. Number two, you miss compounding. And even if Albert Einstein never actually said that compound interest is the eighth wonder of the world, let's pretend he did because it sounds good, and let's consider that you would have missed compound interest. And the point is every year you're out of the market is a year you're not earning returns. Those returns compound, just like the deteriorating health might compound by not cycling. So waiting just one year doesn't cost you one year of gains. It costs you decades of compounding on those gains. Number three, you set yourself up to make emotional decisions.