Breakout

Stock Market’s Five Year Anniversary of All-Time Highs: What Have We Learned?

Jeff Macke
Breakout

Five years ago today the S&P 500 (^GSPC) closed at an all-time high of 1,565 and the Dow Jones Industrial Average (^DJI) closed at 14,164, also its record high. Within a year each of these major market measures shed over 35% before bottoming in March of 2009 after being cut in half.

With most of the losses having finally been recovered, Breakout welcomed Josh Brown, editor of theReformedBroker.com, to explore what we've learned and how investors can apply the lessons today.

Opportunity Is Everywhere

Lesson one is finding opportunity. Brown says that even buyers at the tip-top of the tape would be money ahead, assuming reinvested dividends. Within the carnage were stocks like Apple (AAPL), trading in the $130 area this day in 2007 and up almost 300% since, even with the recent decline.

"No matter how bad an economy is there are always opportunities," Brown says, at least for those able to keep their emotions in check.

Know Your Emotions

How did you trade at the top? How did you feel at the lows? All-time highs aren't unusual, but 50% declines have historically been once in a generation events for stock market participants. Plenty of people claim they bought the lows in March of 2009. Most didn't.

Investors tell themselves sweet lies when markets are sedate. They claim to "be in for the long haul" and swear devotion to buying and holding forever. If you're one of those folks and you stuck to your plan in the horrific 18-month meltdown that started five years ago today, then kudos to you. You're a steady hand.

Diversify

"Diversification did not fail!" exclaims Brown. A portfolio of 70% stocks and 30% bonds purchased five years ago today would be 11% higher now. No great shakes but better by far than what happened to those who gave into the giddiness of October 2007 and the panic of 2009.

Ignore the Extremes

It's been 1,827 days since the October 9, 2007 top. The famous 666 intraday low on the S&P 500 took place on March 6, 2009; 1,313 days ago today.

As humans we ignore the normal and focus on the extremities. It's insanely unlikely today will mark another five-year high. No matter what you did then, you've had more than enough to time to fix it or wreck it in the 1,000 plus days since.

If there's a single takeaway from the record highs, it's this: Success is a day-to-day goal, not a one-time event. Take what you can from the highs and lows then move on, the real money is made in the middle.

Do you think the stock market will hit new highs this year? Let us know in the comment section below or visit us on Facebook!

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