The Relative Irrelevance of Market Highs

Originally in ForbesThis week we’ve heard a lot about the U.S. stock market achieving new highs. So what? Should this record transcendence inspire confidence or fear, action or inaction?

Market High Wire

You’ll find sufficient supporters for both the pessimistic and the optimistic view, with a far greater number of pleas to act on these views. But I invite you to consider the relative irrelevance of market highs for the following simple reason:

Any investment with a positive expected rate of return should regularly revisit and recreate its all-time high as a matter of course. Otherwise, it wouldn’t have a positive expected rate of return!

The caveat is that the higher the expected rate of return on a particular investment, the more irregular we should expect its flirtation with market highs to be. Perhaps that’s why the broad index of large U.S. companies—the S&P 500—has experienced 121 all-time highs in the past 16 years while the Nasdaq—an index of tech stocks—has experienced only nine.

You have three choices in the face of the mania that Wall Street and its many mouthpieces both conjure up and rely upon: you can agonize, act or exercise apathy.

I realize how hard it is not to agonize—to not fall prey to the hundreds of daily invitations seeking your attention. But provoking agony is an old sales trick designed to get you to act. Many in the financial services industry still get compensated to transact—to sell—not to advise. They make money regardless of your benefit or lack thereof, as long as you act.

My recommendation, therefore, is to exercise deliberate indifference. Receive the information you likely have no choice but to encounter and make an active decision to be passively indifferent.

You’ll likely benefit a great deal more from pursuing a timeless personal memory this week than concerning yourself with a financial benchmark’s all-time high.

Of course, you aren’t really free to exercise apathy unless you’ve acted on creating a well-thought-out investment plan. For starters, here’s a simple DIY portfolio that has beaten the pros.

Join my weekly email community.

No spam. Ever. Your info is safe. Always. Powered by ConvertKit