On 28th June, Nifty50 breached it previous all-time high price of Dec’22 and that marked the creation of new all-time high (ATH). In between the market corrected by 10%, with it forming a low at 16,800 in Mar’23. From that low the market has rallied one way by 15%. When the markets enter the all-time high territories, investors worry over whether or not it is the right time to invest.
Investors fear that they are paying prices which no one has paid before. It is very counter intuitive to invest when the markets are at all-time highs. Majority of the investors prefer to bottom fish by trying to find the lows in the market. In the markets, no price is too high, and no price is too low. Timing the market is all but a futile exercise.
Since Jan 2000, there have been 459 days when markets have touched new all-time highs. The data suggests that in majority of the cases the index gives a positive return on different time intervals. Even on a lower time interval of 3 months, in 62% instances the index gave a positive return and in 20% cases the returns were between 10% and 20%. As the time interval is increased to 3 and 5 years, the positive return cases increase substantially to 80% and 96%. On the 5-year time interval, in 60% of the instances, the index gave more than 50% returns.
The above table suggests that investors shouldn’t worry just because they are buying at all-time high as over the long term, investors generate reasonable returns. If we look at instances when the all-time high are created after a major decline such as 15% or more, the data suggests an even better outcome.
New ATH after 15% decline
For Nifty50, when a new all-time high is created after a 15% or more decline, the returns created are as high as 30% on a 6-month time interval and 55% on 1-year time interval. As we go higher on the time interval, the number of instances of positive returns increases substantially. On the 1-year time interval the returns in 100% of the cases have been positive. The last all-time high after a 15% decline was created on 28th November’22. This is yet to complete one year, but on a 6 months’ time interval the returns have just broken even.
S&P 500 data also suggests a similar trend. In majority of the cases, the index has given positive returns when it is bought at all time high after a 15% or more of decline. On the 6 month and 1-year time interval, in 75% and 86% of the instances, the returns have been positive. The return on 1-year time interval is as high as 31%. Only in 2007, the returns have been -19% on the 1-year time interval because of the Global Financial Crisis.
New ATH on Nifty50 after 15% decline
New ATH on S&P 500 after 15% decline
When the market touches new all-time highs, the general consensus is to sell and book profits as investors tend to equate prices at ATH with markets being overvalued. But it is seldom the case. Market touching new all-time highs suggest overall bullishness in the market which is a reflection of the outlook on the businesses and the economy as a whole.
As investors, we must continue investing to take advantage of this irrespective of the price. As Jesse Livermore said, “Remember that stocks are never too high for you to begin buying or too low to begin selling.”
Jaspreet Singh Arora, CIO, Research & Ranking.