Buying Stocks at All-Time Highs

Conventional wisdom says Buy low, sell high. So if the markets are all sky-high, this can’t be a good time to buy… can it?Oddly enough, this reminds me of something from my former life as a college basketball player. Let's see if a trip down memory lane can help me sort this out.Growing up in my family, basketball was a pretty big deal. My sisters and I all played from youth league through high school, and three of us played in college.I played all four years at Washington University in St. Louis. It wasn’t the big leagues (WashU is a Division III school) but we were pretty darn good. We won the national championship each of my four years, and our overall record was 116-4. During one stretch, we didn’t lose a single game for nearly three years.But despite all of our success, when I think back on my college basketball experience, the first memory that comes to mind is one of the few games we lost.It was halfway through my senior year and I was a team captain. We had won 81 games in a row and were seven wins away from breaking UCLA’s all-time NCAA record of 88 consecutive wins, set in 1970-74. (A record since broken by UConn, but I digress.)For those of us who were seniors, we hadn’t lost a game since we were freshmen. The rest of the girls had never lost in college.During our three-year win streak, we had flown all over the country dozens of times. This game was literally right down the street, at Fontbonne University in St. Louis.Everything pointed towards us winning that game.We were three-time repeat national champions. We had the best player in the country, who was later chosen as the best D-III athlete across all women’s sports that year. We had a great coach, Nancy Fahey, who is now in the Women’s Basketball Hall of Fame.But we didn’t play well. And we lost.It was devastating. We felt like we let down all the girls who had come before us and built that winning streak over the previous three years.But it was also instructive. It reminded us what it felt like to lose, and it taught us that games don’t win themselves.I’m happy to say that we bounced back after that game. We went back to work, made the playoffs, and finished the season with another national championship.But that loss to Fontbonne is an example of something I think about every day in my job.There’s no perfect way to predict the future.Over the last week, the Nasdaq and S&P 500 both hit record highs. The Dow Jones traded within two percent of its all-time high.Conventional wisdom says Buy low, sell high. So if the markets are all sky-high, this can’t be a good time to buy… can it?Maybe this is a good time to review my basic investing philosophy.1.  Invest for the long term.2.  Do your research or consult with a professional advisor before choosing investments.3.  Make investment decisions based on where you are; not where the markets are.That third point is just as important as either of the first two. If you are five years away from retirement, you should be making very different investing decisions than if you are just beginning your career. (See my piece on “Stocks, Volatility & Expectations” for a refresher on when to buy low and when to sell high).Asking the question, "Is it wise to buy stocks when they’re at an all-time high?" is just a different version of a basic market timing question, "Is the market going to go up or down from here?"So, is the market going to go up or down from here?In the short-term, I don't know. It's too difficult to predict. Stocks could keep charging up or they could cool off.But as I mentioned back in January, I keep as close an eye on earnings as I do on price. With earnings at or near all-time highs thanks to a combo of a strong economy and lower taxes, stock prices at all-time highs are not out-of-line with what we would expect.So let’s specify a longer time frame for our question:Over the next decade or two, is the stock market going to go up or down from here?Let's look back before we try to look forward. Here’s a chart of the S&P 500 from 1950 until May 2018. The green coloring represents months when the index closed within one percent of its all-time high.https://engaging-data.com/market-all-time-highNote the long-term pattern: Growth, crash, sideways volatility, then growth again. When a long sideways market ends, it can be followed by a growth period that lasts 15-20 years. We call this a "secular" bull market.There is no guarantee this pattern will continue in the future, but secular trends paired with the earnings data that I mentioned before are two key pieces of information that give me confidence.If you're not quite as confident (yet), here are some tips to help you systematize the stock-buying process:•  If you still feel nervous about buying at all-time highs, then establish a price you feel more comfortable with.•  Write it down.•  Make sure you actually hit the "buy" button if/when stocks hit your price target.Regardless of whether you buy now or whether you try waiting for a dip, history suggests that you have a great chance of seeing some solid returns over the next 10-20 years.