Buying At All Time Highs Is A Good Decision... Here's Why

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Palantir Lands $480M DoD Contract for AI System

This past week Palantir landed a $480 million contract with the Department of Defence for its Maven Smart System Prototype.

Why is this significant?

It’s going to help boost their military and government business, which makes up a majority of their sales.

Palantir has made efforts to expand into the commercial business but government revenue is still leading the charge.

The contract extends into 2029 and there’s no doubt this deal will help some of the forecast that they had put out there of raising the revenue guidance to between $2.677 to $2.689 billion for the full year of 2024.

I did a full deep dive on Palantir that breaks down the good and the not so good.

You can read it here.

Available to premium members only.

Should you buy at all time highs?

A lot of investors are scared to buy at all time highs, and rightfully so.

We’re taught to “buy low, sell high”.

So when we see the market reach all time highs investors lay their foot off the gas a bit and wait for a pull back.

While this may be a good strategy in the short term, I’m going to show you why buying at all time highs isn’t such a bad strategy after all.

As I write this newsletter, the big 3 indexes are extremely near their 52-week highs.

The Dow Jones is 3.6% off it’s 52-week high

The Nasdaq is 1.8% off it’s 52-week high

The S&P 500 is 1.2% off it’s 52-week high

So why should you buy at (or near) all time highs if you can wait for a pull back and get in for a cheaper price?

The data below will explain why.

Left chart: suggests that the S&P 500 closed at an all time high 6.6% of the time from 1950-today. In that same time period, 29.9% of the time that all time high acted as a new market floor. Meaning, the price kept going UP.

Right chart: suggests that between January 1, 1988 and December 31, 2023, investing at a new all time high yielded a better return than investing on any given day, provided you were investing long term.

Interesting right?

Of course, we can’t rely on historical performance to guarantee future returns, but the data shows us that buying at all time highs isn’t necessarily a bad thing. In fact, quite the opposite.

If you’re dollar cost averaging into the market like I do, there will be times when you catch the market on a pull back and other times when you catch the market at (or near) a high.

If we take the S&P 500 index as an example and zoom out, we can see that the market goes UP more than it goes DOWN.

The chart below is enough to convince you that this is true.

See all of that green? There’s way more than there is red.

If we dig a bit deeper, we can break it down by all time high by decade.

If you’re DCAing, chances are you’ll catch the market at an all time high like I mentioned before.

In the 2020’s, there’s been 104 all time highs and we’re not even halfway through the decade yet.

So does this mean I can buy any stock at an all time high and make money?

No.

The above charts relate to the S&P 500. This means that it’s not always a good idea to buy individual stocks when they’re at all time highs. Individual stocks will fluctuate in price a lot more than an index will.

All this to say, investing at all time highs is not always a bad idea.

If your time horizon is long enough, you shouldn’t be afraid to buy at the top.

S&P 500 Milestones since 2020

• February 19, 2020: The S&P 500 index reached its highest point in the bull market that started from the low point on March 9, 2009, closing at 3386.15.

• August 18, 2020: The S&P 500 index closed at a record high of 3389.78 amid the ongoing COVID-19 pandemic in the United States.

• April 1, 2021: The S&P 500 index reaches 4,000 points, closing at 4,019.87.

• February 9, 2024: The S&P 500 index reaches 5,000 points, closing at 5,026.61

• May 23, 2024: The S&P 500 index reaches its current all time high of 5,341.88

See you in the next one!

Alex (The Dividend Dominator)
Founder and CEO of Dividend Domination Inc.
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