A Personal Finance and Investment Arm of The Business Times


Buy when market reaches new high?

Buy when market reaches new high?

When markets reach a "high"?

After 36 years in financial services – if there is one "gut feel" investing strategy that I have used – it is what I call – "What do you do when you read in the news that the market has reached a new high?"

From my experience – whenever a market reaches a new high – it normally has some way more to go.

So, when you read the doom and gloom, warnings about market correction, over-valued, etc. – one strategy that you may like to try – is to buy.

Of course, if you are wrong – and the trend turns bearish – you can always "cut loss" if you like. Or, if you are one who for whatever reasons don't want to take a loss – then, of course you may continue to ride it forward.

A look back at history

To illustrate the above strategy – let's look at the recent data for the largest stock market in the world.

The Dow Jones Industrial Index (DJIA) hit a new high of 14,253.77 on March 5, 2013, following the last peak of 14,164.53 on October 9, 2007, i.e. it took five and a half years to get back to its last high.

If you had gone into the market around March 2013 – you may have gained around 29 per cent by February 25, 2015 – when it reached an all-time high of 18,325.92.

The worse ever?

Having looked at recent history – let's look at the worse period in investment history.

The Dow Jones crashed from the then all-time high of 381.87 on September 3, 1929 – and took another 25 years and two and a half months to recover back to 382.74 on November 23, 1954 (exactly a year to the day I was born)!

But had you gone in around November 1954 – you may have gained around 160 per cent by February 9, 1966 when the market hit its peak of 995.14 – and then went into a six and a half year bear market until it hit 995.26 on November 10, 1972.

Of course you can't be a prophet and know that the peak was on February 9, 1966. But if you had exited following the peak when the long term trend turned bearish, you may have had a good ride too.

Caught in a big crash?

But what about the danger of being caught in a severe crash when you employ this "buy when market high" strategy? Well, most the the major stock market crashes in history occurred when the market was already in a short-term bearish trend, with some exceptions like a catastrophic event like 9/11.

Shorter-term "high"?

By the way, the Japanese market (Nikkei 225) has just reached a 15-year high of 18,264.79, recently on February 19, 2015.

As of the date of writing this article (February 26) – the Nikkei 225 had gained about two per cent in about six days.

Leong Sze Hian

Warning: This article is best read in conjunction with my previous articles on stock investing on einvesthub, as no single strategy is better than an understanding of a combination of strategies

Leong Sze Hian
Leong Sze Hian

Leong Sze Hian is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, has authored 4 books, quoted over 1500 times in the media , has been host of a money radio show, a daily newspaper column, Wharton Fellow, SEACeM Fellow, acting managing editor and columnist for theonlinecitizen, columnist for Malaysiakini, a Member on the CIFA International Advisory Board, executive producer of the movie Ilo Ilo (40 international awards), treasurer of Maruah, and invited to speak more than 100 times in more than 25 countries on 5 continents. He has served as Honorary Consul of Jamaica and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelor's degrees and 13 professional qualifications.