What better way to encourage investors to buy market tops than with the S&P once again flirting with its 200DMA even as volatility continues to creep up?
And since sometimes repeating that “buy-and-hold“ or “buy the dips“ isn’t enough, you just have to do some data mining that allows you to drop an article encouraging investors investors to try to seek out and purchase stock at market tops. A sure fire way to make your case? Argue that those who didn"t buy after Brexit, the U.S. election, or five market corrections since 2009 have "missed out".
As if one needed a reason another reason to be bullish, aside from the complete and total euphoria that has driven the markets to all time highs over the last few years, Bloomberg has published an article noting several studies that encourage investors to actually try and buy market tops. That’s right. The sentiment has changed even from the bullish sounding “always buy and hold“ to “now we should be actually trying to time and by market tops to buy them".
The Bloomberg article tries to entice investors by telling them of the last year before a market top usually provides the most lucrative returns. Even more amusing is the sentiment that selling too soon (especially after a 10 year bull market) can be "costly":
Behind it all are facts of investing known well by anyone who sold after Brexit, the U.S. election, or five market corrections since 2009 that look just like this. One, it’s hard to see the end of things. Two, a lot of money is made at the top. Three, you miss any payoff in equities right now at grave risk to your career.
“It can be 6 or 8 percent costly, or even 10 percent costly” if you bail too soon, said John Augustine, chief investment officer for Huntington Private Bank in Columbus, Ohio, in an interview at Bloomberg’s New York headquarters. “That can mean a lot to folks in a 2 percent nominal world.”
It can actually mean more. A study by Bank of America Corp. on market peaks since 1937 shows that being uninvested in the last year of an advance meant foregoing one-fifth of the rally’s overall return. While every episode is different, that math translates into additional 470 points in the S&P 500, if the bull market goes on for another year.
Remember, "greed is good", and there is nothing greedier than telling people who have made an average of 18% annually the last decade to embrace risk and keep shooting for that last 6% to 8% at the market top. Ignore the fact that all time highs always leads to dramatic market drops.
Bloomberg continues:
“The market’s topping process tends to create this higher return environment, which makes it tough for investors to assess where we are,” said Matt Forester, chief investment officer who helps oversee $7.9 billion at Lockwood Advisors Inc. in King Of Prussia, Pennsylvania. “The process can go on for a while and it doesn’t change on a dime.”
Even the worst declines are often erased, meaning an ill-timed decision to sell is usually a bigger mistake than waiting for the bottom. Over the last eight decades, the S&P 500 has advanced a median 21 percent in the year prior to a market top, compared with a 15 percent decline in the year that followed. The gains were big enough to overcome losses over the ensuing year 67 percent of the time, data compiled by BofA show.
And of course, what would an article of this type be without an active manager going on the record and talking about how easy it is to be an investor simply by just buying and holding passively:
“I’m ahead of the game by just sitting tight,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman & Co. in New York. The firm oversees $32.1 billion in private wealth assets. “I’d interpret that as a case statement for the wisdom of not trying to time the market.”
It"s that simple!
Just buy and hold... and pray that central banks will always come and bail you out. Indeed, according to the authors, just because the stock market has always gone up over the course of the very long term, the great mystery of investing properly should and could be boiled down to simply buying index funds at any point and then just sitting back and letting the cash roll in, in perpetuity.
Except the problem is that this strategy isn’t as creative, daring or headline grabbing as Bloomberg would like it to be. Like many things in our economy and in our stock market, it is reliant upon Fed policy and current monetary theory holding up and not losing the confidence of the market or of investors. And with all central banks approaching the physical limit of their interventions (just yesterday we reported that the BOJ now owns 77% of all Japanese ETFs), we almost find it surprising that pumpers of "buy the fucking top" forget to mention just why we have yet to see a crash that sticks. "Almost" but not really.
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