A classic example from my buddy Steve Sjuggerud on a Wall St “truth”, ie you have to buy low sell high…(reminds me of an olllld 2007 post here).
—-
Should You Buy at New Lows? Or New Highs?
So we tested which strategy works better: Buying near 52-week lows… or buying at 52-week highs. We looked at nearly 100 years of weekly data on the S&P 500 Index, not counting dividends.
You might be surprised at what we found…
After the stock market hits a 52-week high, the compound annual gain over the next year is 9.6%. That is a phenomenal outperformance over the long-term “buy and hold” return, which was 5.6% a year.
On the flip side, buying when the stock market is at or near new lows leads to terrible performance over the next 12 months… Specifically, buying anytime stocks are within 6% of their 52-week lows leads to compound annual gain of 0%. That’s correct, no gain at all 12 months later.
Using monthly data, our True Wealth Systems databases go back to 1791. The results are similar… Buying at a 12-month high and holding for 12 months beats the return of buy-and-hold. And buying at a 12-month low and holding for a year does worse than buy-and-hold. Take a look…
|
1791 to 2012
|
|
|
All periods
|
4.3%
|
|
New Highs
|
5.5%
|
|
New Lows
|
0.9%
|
The same holds true for a more recent time period, this time starting in 1950…
|
1950 to 2012
|
|
|
All periods
|
7.2%
|
|
New Highs
|
8.5%
|
|
New Lows
|
6.0%
|
History’s verdict is clear… You’re much better off buying at new highs than at new lows.
You might not agree with it… but it’s true.
