Each point in the ups and downs of the market has its own emotional challenges for long-term investors. The inevitable downturns like we saw in 2018 require that we muster our intestinal fortitude and avoid the temptation to flee to cash. In times of extended market doldrums, as we saw in 2015-16 when stocks mostly moved sideways, we have to avoid the temptation to tweak our portfolio in pursuit of higher returns in risky investments that can eventually lead to big losses.

Then there are the times in which we find ourselves today, with most major market indices at or near all-time highs. When stocks push into record territory, we often find our joy tempered by anxiety over stocks being overvalued and poised for a fall. Our fears are further enhanced by the endless stream of stories in the financial media highlighting analysts’ predictions of a looming downturn and their suggestions that investors should “take some winnings off the table”.

Consider the following chart that shows the milestones achieved by the Dow Jones Industrial Average from 1995 through the end of 2017. Was it ever wise to “take some winnings off the table” after the Dow hit a new all-time high? Sure, you can identify a few times when you could have avoided a downturn like we saw after the market highs of October 2007. But those times are far out-numbered by the times that the Dow continued on to even greater highs.


Source: CBS Marketwatch research

The bottom line is that stocks hitting record highs and major milestones is not a clear indicator that a downturn is looming. Stocks can, and often do, keep soaring well after the conventional wisdom has decided stocks are overvalued. And even when a downturn occurs, it is always temporary in the market’s relentless climb over the long term.