Given ongoing volatility and growth stocks’ continued outperformance, investors may feel tempted to sell at market highs. However, buying and holding through large market gains proves more beneficial in the long run.
Headlines of “new all-time high for markets” seem almost a dime a dozen in the last year. The bull run of growth stocks proved resilient to high rates and inflation for much of 2023 and this year. In such an environment, the temptation grows to sell at “new highs” for many investors. However, doing so proves to be a detriment to long-term portfolios.
Bill Nygren, CIO-US, Portfolio Manager at Harris Associates, adviser to The Oakmark Funds, discussed the frequency of these “all-time high” events for markets in a recent video. Over the last 50 years, 163 one-month periods experienced new record highs for the S&P 500 Index.
“A little more than a quarter of the time, the market has been at a new all-time high,” he explained.
The Drawback to Selling Out at Market Highs
Selling out of positions to capture equity gains sometimes seems beneficial in the short term. Locking in gains and selling out of positions before the great financial crisis or, more recently, the losses in 2022 seem reasonable in hindsight. No one has a crystal ball to forecast market collapse, however, and divesting temporarily simply doesn’t pay off.
“Trying to time the market is a fool’s game,” said Nygren. “If you had just bought the S&P 500 50 years ago … put $10,000 in and stayed invested, you’d have over $2.2 million now.”
That translates to a gain of 220x the original investment. In comparison. Investors who sold out of all-time high positions and then bought back in after the market dropped 5%-20% made approximately 10x-20x their original investment.
“You lost more than 90% of the appreciation potential by trying to time the market and reduce your risk when the market was at a new all-time high,” Nygren explained.
Staying invested through each round of new all-time highs and any subsequent market capitulation benefits investors in the long term.
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