Three Reasons to Buy at Market Highs

Keith Fitz-Gerald Aug 17, 2016
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The markets are once again flirting with new all-time highs, leading many investors to wonder if they should be buying. And, once again, all the usual suspects are trying to convince you to abandon ship.

…They’re overvalued

…There’s a crash around the corner

…Earnings stink

…Clinton this, Trump that…

…the Fed

To paraphrase a famous line from the 1990’s smash American NBC sitcom Seinfeld

Yada, yada, yada.

The markets are always making new highs.

Putting more money to work is exactly what you should be doing.

You’ve just got to pick your bets a bit more carefully.

Don’t Let Fear Doom You to Terrible Returns

Many investors think that their luck is about to run out now that the markets have tapped new all-time highs.

Not so.

First, history shows that the markets are almost always at or near all-time highs.

That’s how they work, and how you make money. There’s a very powerful bias over time that parallels the huge amounts of money that’s constantly chasing quality companies.

If that sounds like a loaded statement, you’re right – it is. But I’m bringing it to your attention for a very specific reason. Even the gut-wrenching lows of 2003 and early 2009 were all-time highs when compared to the very same markets in 1990 or in 1980.

It’s your perspective that changes.


See what I mean?

Second, you don’t want to fall behind by trying to time the markets

Every dollar counts now that the world’s central bankers have embarked on yet another round of monetary madness, and every day you’re not in the markets is a day you’ll have to make up… but somehow never will.

I’ve talked with tens of thousands of investors over the years and if there’s one thing that trips them up, this is it. They fall prey to their emotions and try to time the markets based on whether they think the markets are high or low, usually with a very pessimistic outlook I might add.

Here’s what that chart looks like.


Most get it backwards because their emotions get the better of ’em and, not surprisingly, doom themselves to terrible returns.

From 1994 to 2014, for example, the average individual investor trying to guess the markets performed so poorly that they lagged every asset class except housing prices, three-month Treasuries, and commodities.


Source: Richard Bernstein Advisors LLC., Bloomberg, MSCI, Standard & Poor’s, Russell, HFRI, BofA Merrill Lynch, Dalbar, FHFA ,FRB, FTSE.

According to the latest DALBAR research, the average investor who tried to time the markets achieved annual returns of just 5.19% over the 20 years ending in 2015 while the S&P 500 tacked on an average 9.85% a year over the same time period.

Of course, over 20 years, that amounted to a 190% gap in performance!

And third, capital is a growth engine, and what I mean by that is very, very specific.

Primary markets and the companies that drive them create value, and value, in turn, creates price. Not the other way around.

You can argue until you’re blue in the face (as many do) that stock options, high frequency traders, the Fed, derivatives, and more have removed that influence… but you still wouldn’t put a dent in the underlying truth.

Prices ultimately reflect growth over time, which is why you want to invest, even at market peaks.

But in what?

That’s the secret.

Market peaks typically reflect a narrowing of breadth, trading volume, and volatility. You’ll know you’re getting near one because price efficiency drops – meaning that it takes more effort to move higher.

Practically speaking, this is like climbing a mountain into thin air, in that it gets harder to breathe the higher you go. So, to avoid altitude sickness, you descend a bit before gathering the strength needed to make another ascent.

Chances are you’ve heard me allude to this on television in recent weeks, in that you have to pick your bets a bit more carefully.

The easy money has been made, so indices are out.

Instead, you want to concentrate on the best companies using the Total Wealth Approach we talk about constantly:

  1. Begin with the Six Unstoppable Trends backed by trillions that will get spent no matter what the Fed does, no matter what market conditions are, and no matter who gets elected.
  2. Prioritize “must-have” companies over “nice to have” companies in each of the trend groups. Anything else is a risk you don’t want or need at the moment.
  3. Pay careful attention to risk management using a combination of trailing stops, inverse funds, and even options if you like… just in case.

One of my favorite choices at the moment is Huntington Ingalls Industries Inc. (NYSE:HII).

I initially recommended it last November to High Velocity Profits members, and so far, it’s returned 38.29% versus only 3.59%from the Dow of the same time frame.

That’s a more than 10-to-1 “beat” and a cumulative advantage that gives every subscriber following along a huge advantage when it comes to building the kind of wealth most folks only dream about.

If you’re not familiar with Huntington Ingalls, the company is a defense contractor best known for its services to the nuclear, oil, and gas markets, as well as for being this country’s largest military shipbuilder.

The company has a $7.72 billion market cap, is trading at a very affordable 18 times earnings and a low beta of only 1.08, which means it’s very stable under a wide variety of market conditions that scare the you-know-what out of most investors.

Huntington Ingalls also pays a 1.18% yield, which isn’t the fattest yield you’ll find right now. But HII has grown its payouts by 25% over the last year, and currently pays just 19% of profits back to shareholders, according to Dividend.com. That means this could be a very lucrative income play for patient investors as the company continues its dividend-growing hot streak.

Now, I could go on, but we’ve covered a lot of ground today.

So take a minute to digest the data I’ve shown you. You may have to come back to it two or three times to really internalize my message – that it’s okay to invest at market peaks.

The best companies never go out of style and neither will the profits they put in your bank account over time.

Toppish markets and all.

Until next time,

Keith

5 Responses to Three Reasons to Buy at Market Highs

  1. Barry says:

    Keith,

    Love your comments & TV interviews. You always seem to apply good reason, and stay calm, you have mastered your key advice: Don’t Be Emotional

    Barry

    • Keith says:

      Thanks for the kinds words, Barry.

      To be honest, I feel the same angst many investors do…I’ve just got 30+ years of market experience and the highly specific knowledge needed to keep it in perspective when most people panic. I put my shoes on just like everybody else does…one at a time.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. Robert in Vancouver says:

    I’ve been investing since 1971 and what works for me is to buy dividend paying stocks and ETF’s when they dip a little and just hold them. I rarely sell anything and have averaged a 16% return including dividends since 1971. Since ETF’s came along a few years ago I mostly buy and hold them instead of individual stocks. There are lots of ETF’s paying over 7% dividends on a monthly basis on the Canadian stock market that hold Canadian, US, and international stocks in all sectors.

    • Keith says:

      Thanks for sharing Robert.

      What you’ve said is music to my ears.

      In their rush for quick gains, many investors totally overlook the fact that dividends and reinvestment can account for 70-,80 even 90% of total returns over time. Plus, in many cases, you actually own the stocks you initially bought for free by virtue of having received so much income!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  3. Manuel Cordeiro says:

    Dividend equities – US better returns, Canada less % returns (Hold is OK)
    ETFs =roller coaster rides especially the leveraged 2 & 3 multiples
    Been there and big loss !
    I compare ETF trading to option trading .
    These need to be traded &not held.
    I noticed the day trading is affecting the overall volatility of the markets and a week like this 9/10 to 9/30 was a traders market
    I did well Therefore Buy and hold is good until a correction and ability to trade the market UP or Down is best.
    Thank you

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