The Market is Too High!
… again!!!
… or is it?
Let’s play a little game by going back in time and looking at some market snapshots of the S&P 500.
For each of the 11 graphs below, was the market too high? There are 11 times the question is asked“Market Too High?”, one for each graph. As you can see, the first graph was up over 60% at the end so this should be easy right?
Look at each graph and decide if the market has run too far . . . or not.
Before I give the you the answer, let’s talk about why I’m posing this question in the first place.
I can’t even begin to count the times I’ve seen comments in social media and in the news about how high the market is and why investors should worry.
At best the commentator is misguided and in the worst case, they have a self-serving reason for saying it.
That reason is because they are short the market at that moment and have a complete conflict of interest with the recipients of their “news”. They want you to act by selling and driving the price of the stock, or even the entire market, lower so they can profit from it.
I recently watched a YouTube interview with a hedge fund manager (who shall remain nameless) where this manager talked about how in the past, he successfully manipulated the market for an individual stock so he could increase his profit on the trade he was making.
He did this by spreading fake news and then investing $10million to $15 million to move the stock in the desired direction to back up the news. At the same time, he would position himself with a leveraged investment to take advantage of the desired direction.
Ultimately, he would make money on his leveraged investment that more than made up for whatever he lost by manipulating the stock price.
The chart below shows the complete 30-year graph of theS&P 500 with all the “Market Too High?” questions shown.
If you look directly under each “?” you should be about at the end of each of the above 11 graphs. Each of the graphs marked Graph 1 through Graph 11 above is in the correct (although not complete) time sequence from oldest (Graph 1) to most recent (Graph 11).
If you said two or three times out of the 11, you we recorrect! Two of those times are obvious from the graph above – 2000-03 (Graph 3) and 2007-09 (Graph 5). The 3rd one (Graph 6) is arguable in mid-2011 when the debt ceiling crisis caused the S&P 500 to fall-20%.
I specifically avoided asking the question in March 2020 (middle of Graph 11) because you can see what happened in the graph, but that makes four times in total when it would have made sense to protect your portfolio.
By the way, the last graph (Graph 11) ends on yesterday, so we won’t know the answer to that one for at least several weeks.
The point of this article is that you should follow two pieces of sage wisdom:
1. Don’t try to time the markets unless you’re a professional, and even then, there are very few of us who have the tools to make sense of it all.
2. Don’t worry about how high the market seems. Take the long view and leave the driving to us. Although I hope the experience is much better than taking a Greyhound bus.
Over the past 30 years you would have had to get it right 4 out of 11 times or 36% of the time to get it 100% correct (I'm including March 2020 in this calculation even though it wasn't marked as a question).
If you were correct all four times, then would you also have had the foresight to get back into the market at the right time?
In other words, you must be correct twice for each decision: Once to get out of the market, and a second time to get back into the market.
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