Stock Market: All-Time Highs (Can It Last?)

Stock Market: All-Time Highs (Can It Last?)

Ever since I’ve been writing these weekly blog posts, I find my topics range all over the place.  Sometimes they are investment strategies or planning tips.  Other times, they are observations of 20-plus years working with individuals on their financial goals.  Yet occasionally I find myself writing about thoughts that ruminate in the dark annals of my mind.  With this lovely lead in I’m sure you can figure out which rabbit hole I’m going down today.

Today I’d like to share some thoughts I remember having early in my career, and candidly have to remind myself of these thoughts more often than I’d proudly admit.  The thought today is on stock market record-setting highs and if they can keep going.  This seemed like as good a time as any to share these revelations as both the S&P and the Dow Jones are at record highs.

Back In The Day

You see I officially started in this industry in 2003, assuming you don’t count those dreary nights interning for a Morgan Stanley advisor on U of D’s campus cold calling full pages from the phone book.  What’s a phone book, you 30-year-old readers and under are wondering right now – let’s just say that is a topic for another day. 

Anyhow, in 2003 we were fresh off the latest stock market crash of the tech boom, and people were slowly recovering.  As a matter of fact, the stock market back then was doing quite well as the S&P was around the mid-900s trying to eclipse that 1,000-point mark, and the Dow Jones was holding steady at around 8,345.  I remember thinking, “Man if you invested today at market highs you really missed the boat on getting in while it was low.”

I bring up this point, as many of you (me included), have questioned whether is it smart to be adding new money to your investments even when we are at, or near, market highs.  This is a very good question and in a perverse way goes against some of our innate instincts.  We are so accustomed to it being really hard to break a world record, and if you are able to do so you hope, or witness one, typically you are expecting to squeak past. 

Breaking Records

For instance, I recently finished reading the book Seabiscuit, which was great.  This special horse would set track records everywhere he went.  Each time it would be by a second or so blowing people’s minds as the unthinkable was happening before their eyes.  Or even go back to Michael Phelps setting world record after world record.  He would touch that wall and you saw yet another world record being shattered as would come in .5 seconds faster than the previous record holder.

Now, we turn our caveman-wired brains back to the topic at hand, and if I told you the stock market was at an all-time high in the 900 (S&P) or 8,000 (Dow) point range the next thought pattern is logical.  That is if the economy can stay hot and these companies continue earning well maybe there is a little more to go.  Good news folks, that ain’t how the markets work!

Today, 21 years later (ugh) can you guess what new world record the stock market has achieved?  If you guessed the S&P was at 4,795 and the Dow was at 38,115, you’d earn yourself a gold star.  If in 2003, before iPhones existed you guessed that in 21 years the markets would be approximately 4.5-5 times higher than they were then you’d be called crazy.  Or at the very least, you yourself would have a hard time believing it.

Can It Continue?

So, can it continue like this forever?  If you detach your intuitive brain and instincts from reality, you’ll find the answer is a resounding yes.  The trick is to understand some basic tenets of how stocks work.  I’ll list them briefly for your edification.

1. There is more money being printed on this planet every year, thus the price of goods and services continually goes up (inflate).
2. There are more people on this planet each year buying the goods and services that are offered through these companies listed on the stock market.
3. Despite what we are told, there are substantially fewer people on this planet each year who live in extreme poverty.
4. These large companies are run by the top business minds on the planet.
5. These large companies generally care about one thing and one thing only, increasing their stock prices for their shareholders.

Thus, if you conflate these things above you come to the realization that what is happening is that there are more people, with more money, buying more expensive goods, with a larger percentage of the world population that can afford these goods, being run by brilliant individuals with one goal on their mind.  What does this mean for you the stockholder?  900 to 4,795 in 21 years!

Conclusion

In conclusion, I know the urge and the logic is to not invest or be weary when things are going well in the markets.  The reality is that the markets not only usually do well, but their biological makeup is structured to continually do well.  Next time you are questioning yourself hopefully you remember this little article and tell yourself this is exactly what is supposed to happen, believe it or not!

As always, stay wealthy, healthy, and happy.