What Goes up Must Go Up
This week, shares of electric car company Tesla Inc. (NASDAQ: TSLA) went berserk.
The stock surged almost 20% on Monday.
And it did the same thing again on Tuesday.
All told, this controversial stock is up more than 121% in the first five weeks of 2020, as of this writing.
“[Tesla] is going to get absolutely clobbered at some point before long,” one analyst told CNBC.
That’s a natural reaction to seeing a stock move up so far, so fast.
And it’s not just Tesla.
The big S&P 500 index has been undergoing a tear of its own in recent years — the index, which tracks the biggest stocks in the market, is itself up around 50% over the course of the last three years, hovering at all-time highs.
And plenty of folks are wondering when the other shoe is going to drop.
But what most don’t realize is that all-time highs aren’t an unusual event for the stock market… in fact, they’re downright normal.
Looking back over the last 33 years, the S&P has spent around 50% of all trading days within just 5% of all-time highs…
That’s a surprising statistic for many, especially when you consider the fact that it includes massive bear markets in 2000 and 2008 that took years to recover from.
So it turns out record highs are the rule, not the exception.
Even more interesting, they’re a great time to buy!
While most folks would probably think that buying when the market’s sitting at all-time highs is a foolish move, it’s actually a wise one.
On average, you’d end up with returns of 8.2% just six months after the high. That’s nearly a half-again better performance than buying stocks on days when the market isn’t breaking new records.
In fact, it’s a bet that’s paid off 81% of the time:
That’s certainly not in line with the conventional wisdom.
But the stats don’t lie.
Why might buying when stocks are soaring be a good strategy? It’s likely got a lot to do with the fact that markets trend — and buying at highs ensures that you’re buying into an active uptrend rather than trying to pick a bottom.
That’s good reason to buy stocks with confidence as markets soar in 2020.
As for Tesla? Your guess is as good as mine…
Jonas Elmerraji, CMT