This is the «Great Paradox» of the stock market: What seems expensive and too high usually continues to go higher, and what seems cheap and too low usually continues to go lower. The message is clear: buy high, sell higher.
How does a stock go from $50 to $100 for the first time?
How does a stock become a super-performer, a multi-bagger, a long-term wealth compounder?
By inevitably hitting new all-time highs along the way. It climbs into new high ground. Uncharted territory. Yet most investors, whether new or experienced, happily buy stocks that are well below their highs because they think they are getting a bargain. In conversations with market participants, many said that they do not buy stocks that reach new highs. They think it is safer to buy stocks that look like a good deal because they have either fallen sharply in price or are trading near their lows.
If you analyze the biggest winners of the last 140 years, but also the general market indices, one thing stands out. It is one of the great paradoxes of the stock market that what seems expensive and too high usually continues to go higher and what seems cheap and too low usually continues to go lower.
The message is clear: buy high, sell higher.
Chart 1: Average cumulative S&P 500 total returns, 1988 – 2023
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