U.S. markets closed

Tom Lee: The best investment decisions are characterized by 1 word

Sam Ro
Managing Editor
Katie Kramer | CNBC. In short, usually bullish strategist Tom Lee advises that investors should “sell the beach, buy the teach.”

Tom Lee is a well-known name among folks who read Wall Street's stock market research.

As chief US equity strategist at JP Morgan, Lee has made some fantastically bullish calls on the market that would eventually come to fruition. He continues to make bullish calls at his new firm, Fundstrat Global Advisors.

Lee is currently telling clients that he expects the S&P 500 (^GSPC) to hit an all-time high of 2,325 by the end of 2016. That call makes him arguably the most bullish strategist on Wall Street.

That target is a bit daunting for investors who have watched earnings growth flatten out as the bull market enjoys its seventh year.

But that's just it. That discomfort is a feeling shared by many in the markets. And counterintuitively, that's actually what makes the stock continue to look attractive.

"One of the lessons I learned over the past 24 years as a research analyst (first job was Kidder Peabody), is the best investment decisions are 'uncomfortable,'" Lee said in a note to clients on Friday.

That single word is at the core of the field of behavioral finance, which more or less is the study of how investors will act irrationally. Most investors don't want to make a decision that feels uncomfortable, and so that error often presents opportunities for folks who are willing to go against the grain.

This is a relevant conversation, especially as the stock market is within a few points of new all-time highs.

"We all know the entry point to go long, after steep declines, is never obvious," Lee said. "Upside breakouts are not any different—our clients are telling us they want to fade any upside breakout of the S&P 500 (2134 prior all-time high)."

"[W]e would be buyers of an upside breakout—in other words, we do not think this breakout attempt will fail like it did in 2015 (May, June, July and November)," he continued.

In other words, buy as prices go higher.

Among other things, Lee points to the bullish upturn in the ISM export orders subindex, a stabilizing US dollar, and a rebound in commodity prices as supporting his bullish thesis.

Sam Ro is managing editor at Yahoo Finance.

Read more:

The dumbest math mistake investors make in the stock market

Now's a great time to reread Warren Buffett's op-ed he wrote after one of history's worst sell-offs

The not-so-secret way millionaire investors get way richer

Merrill Lynch chief economist nails the truth about risk in a perfect 3-word sentence