More Money Has Been Made In Rising Markets And At The Top Of The Markets

Includes: SPY
by: Dale Roberts


Some investors accumulate cash, waiting for market corrections or pullbacks. Can that add value?

Most monies have been invested at or near market tops, as markets have gone up more than they've gone down.

Market history suggests any kind of market timing effort might be an exercise in futility.

Timing the market and waiting for better entry points seems to be a fool's game. It's just an expression folks, no need to take offense. Many investors appear to hoard cash at times when they feel the markets are overvalued or they feel uncomfortable reinvesting new monies or portfolio income at market tops.

But the irony is, we have mostly always been at or near a market top. Anyone who avoids the market tops is likely to mostly avoid investing in equities.

Most years are positive for the S&P 500 (NYSEARCA:SPY) the venerable US equity benchmark. Markets have gone up, mostly. It does not take more than a fifth grader to notice that if a line is mostly going up (think stock chart) then that line is almost always near its peak. It's been peak after peak after new peak.

Since 1940, and according to the returns listed on, more years are positive to negative on the S&P 500 by a ratio of more than 4 to 1. The ratio is 4.4 to 1.

Over that 84-year period up to and including 2014, there have been 19 down years for the S&P 500, 65 years delivered positive returns.

Imagine losing at a game when the odds were in your favor by a ratio better than 4 to 1. You'd have to be pretty bad at that game to lose. Well we know that too many do not do very well at that game, as they walk away the first time they land on a negative year. That's a different story and a different article. This article is about investing at the top, well, because we have been mostly at or near the tops.

Here's a 5-year chart, courtesy of Yahoo Finance.

If you wanted to invest in large cap US equities over the last 5 years, those purchases would have been made mostly at the market top or within 5% to 10% of the market top. There was a 20%-plus pullback in late 2011. A little head fake.

Monies invested towards the bottom of that minor pullback in September of 2011 would have earned 14.8% per year. Monies invested July of 2011 just before the correction would have earned 12% per year to date. Both calculations courtesy of the total return tool at to September 3, 2015.

Hmmm. Those both look like nice entry points to me.

And here's a price returns chart for the S&P 500 from January of 1980 to January 2000. We can see the Dow 30 being tracked from January of 1995.

The first opportunity from January of 1980 to buy 20% or more below any previous market top occurred in the market correction of 1987-1988. The market was below 20% of the market top from August 17, 1987 until June 1 of 1998, for less than 10 months. Meaning, in price, the S&P 500 was available 20% below the market top for only 10 months - over a 20-year period. If one avoided market tops, they largely said no thanks to investing in equities in the period.

That said, those who like to buy "low" have certainly had their opportunities over the last 15 years.

But even in this period that provided two major market corrections of 50% or more, the majority of the buying and reinvestment would have occurred within 20% of the market tops.

Looking at the most recent major market correction, from the market top of October 2007, the S&P 500 was within 20% of that price or above 20% of that market top price, all save for the period of September 15, 2008 to December 13, 2010.

An investor that tries to time the market by only buying during market corrections, or an investor that wants to not buy near market tops is likely putting handcuffs on their investment returns. There would be extended periods when that investor is not reinvesting their dividends and new income. That income may be sitting in cash earning very little, and in the current low interest rate environment, that cash is likely losing spending power when we factor in inflation. That money is "going backwards" in real dollars.

Once again, it may all come back to the suggestion of Mr. Benjamin Graham and that is to dollar cost average. From The Intelligent Investor:

It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities. On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value.

Investors might consider the value of taking any guesswork out of the equation. The markets will do what they will do, and we should remember that historically, they have mostly gone up; most years have been positive.

It appears that we should not fear the market tops, investment portfolios are usually sitting near the top of the mountain. When we see the published total returns of the S&P 500, that includes the reinvestment of dividends when they are available. There is no market timing involved.

From, here's a chart that shows the total return breakdown for the S&P 500 and the effect of the reinvested dividends. And according to Standard & Poor's, the dividend component and reinvestment of those dividends was responsible for 44% of the total return of the index over the last 80 years. 44% of the gains were achieved by systematically reinvesting the dividends as they became available, regardless of where the market sat relative to recent highs or lows.

A passive index can teach us a lot about the stock selection process and also the reinvestment process.

An investor who followed the advice of Mr. Benjamin Graham has bought at the market bottoms, the market tops and everything in between, but more often than not, he or she would have bought at or near the market tops. But on the plus side for buying when investments go "on sale," the investor who dollar cost averages will buy towards any bottom, at the bottom and coming out of the bottom. It is the "dollar cost averager" who likely stands the best chance of capturing those market bottoms.

But even still, those market bottoms have been drastically outweighed and outnumbered by those tops.

Thanks for reading, and always know (and invest within) your risk tolerance level.


I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Dale Roberts is an Investment Funds Associate at Tangerine Investment Funds Limited a subsidiary of Tangerine Bank, wholly owned by Scotia Bank; he is not licensed to provide professional advice on stocks. The opinions expressed herein are Dale Roberts' personal opinions relating to his experience as an investor and are not those of Tangerine Bank or its subsidiaries and/or affiliates. This article is for information purposes only and does not constitute investment advice or an offer or the solicitation of an offer to buy or sell any securities. Past performance is not a guarantee and may not be repeated. Investment strategies are not suitable for everyone and you should always conduct your own research or speak to a financial advisor.