How I invest at all-time highs

Everything is so expensive?

Hi friends,

I’m Francesco and all-time highs should not intimidate you.

If you’re new, don’t miss out some of my recent updates:

• 💎 Buying these stocks, at these prices

• 🏅 Diary of September 2024: How I doubled my savings in 3.75 years

• 🏡 Holiday Wonders: Airbnb 🏡

🧠 These 5 habits help me navigate bull cycles without feeling the dizziness of record highs and expensive valuations. Stay with me! 🧠

And no… despite the picture I took last year in NYC, begging the Wall Street bull to continue the upward streak is not one of them 🤓

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1. I stay calm

Reason 1: record highs are pretty normal.

Yet when equities climb to new highs, our mind tends to play tactical games.

‘I’ll take profits and come back later’, ‘Let’s cash in and call it a day’, or ‘The market can’t go much higher than this, seriously’. I’ve felt myself all these doubts.

But what if I told you that US equities have traded almost 2/3 of the time near all-time highs since 1970?

Here’s what I found about the S&P 500:

• 14% of the time, it traded at record highs

• 32% of the time, it traded at max -5% off

• 12% of the time, it traded at max -10% off

Which means that 60% of the time, US equities are hovering around record highs.

To give you an October 2024 updated view, here’s the complete distribution:

Reason 2: I can’t control market fluctuations, and I accept uncertainty.

This is part of my stoic investment philosophy: I only focus on aspects I can control and I don’t waste my energy trying to predict the unpredictable.

It’s not an if, but a when: the stock market will correct/crash when I least expect it to happen.

My job is not trying to time these corrections, but rather to always be mentally and financially prepared for them.

As I recap in the post below, it’s simply a fact:

• -15% corrections occur on average every 18 months

• -20% corrections occur on average every 3.5 years

• -30% crashes occur once every 10 years

Obviously, statistics are made to be broken and history is never a certain anticipation of what’s coming next.

➡️ Conclusion: let the market run, avoid pre-mature selling, never time the market, welcome corrections, and be flexible enough to embrace any scenario.

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2. I consult my selling checklist

‘To sell or not to sell?

That is the question’

May Hamlet and Buffett forgive me for the quote, but I though it was accurate.

Selling is the hardest part of a semi-active equity investor.

There are so many mental pitfalls and temptations to fight against. I’m sure you likely experienced some of these:

• Your stock has gone up a lot: time to cash out? Tempted to take short-term profits? Is the company still a solid risk-reward? How long is it going to take before the stock catches another leg up?

• Your stock is flat since months/years: am I getting anything wrong here? Is the market ever going to reckon this stock? Is it a value trap?

• Your stock is down a lot: is the market right? Am I holding a bad company? Can I sustain these unrealized losses?

Furthermore, as many say:

There’s only one reason to buy but there are many reasons to sell.

A few examples:

• A sudden personal need arises, and you may be forced to cash out portions of your portfolio;

• A bear market hits and suddenly you will find many more deals than expected, being forced to sell your current holdings;

• Geopolitical events may lead you to sell for ethical reasons.

➡️ Solution: a well-built selling checklist will definitely help you navigate these doubts and avoid mistakes. That’s what I do: I isolate temporary emotions, and I refer to my selling dashboard to take rational decisions.

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3. Tactical decisions

In practice, there are 3 main tactical moves that I follow during extended bull-runs.

1. Cash is king nice to have:

   I always maintain a minimum percentage of cash or equivalents (likely short-term bonds). This threshold can swing between 5% and 25% of the overall portfolio, depending on the occasions I find.

2. I’m careful with size:

   During all-time highs, I typically avoid entering new positions too aggressively. So far this year, I’ve initiated 3 new positions allocating 5% (actually my minimum threshold) to each of them.

3. An eye on Beta:

   Beta is the proxy of future volatility. During extended bull markets, I tend to consider with higher attention companies with low beta - but this is not a crucial aspect and it all depends on other factors as well. The stocks I bought recently have betas between 0.96 and 1.19.

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4. I build dream watchlists

In 2020, I thought I would never own some of my dream companies.

But I was wrong: stocks fall, even when fundamentals remain strong or get even better.

This is why it is so important in my opinion to build quality watchlists. And by quality I intend business quality, nothing to do with valuation.

It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.

True, I may miss out on ‘value trades’: companies trading at super cheap valuations that may experience a +30% in a short amount of time - the Celsius, CVS, Dollar General, Nike of today’s landscape.

I’m looking for compounders: the best companies in the world, with established or rapidly rising competitive advantages which can ensure multi-year earnings power.

In my recent article, I walked you inside one of my watchlists. Sure, this target prices may never come. But what if they do?

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5. Time for learning

The beauty of my investing style is that it frees me up a lot of time. Equity investing is a slow and calm journey.

In other words: I’m quite inactive when I don’t see opportunities, but I enter aggressively when I see top risk rewards.

If somebody asked me how I spend my time as investors, I would say that most of the time I’m researching new companies or just waiting.

The picture below may summarize well what I’m doing now as patient observer amid record highs:

• I try to read more books;

• I spend time going vertical on industries where I’m less confident and skilled;

• I pay even more attention to my investing diary.

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Stay tuned!

2025 is about to bring exciting news.

Is this you? 👇🏼

• Would love to become a 100% confident equity investor

• Are struggling to achieve satisfying returns

• Don’t know how to properly value the companies you love

• Don’t have enough time to run a quality equity portfolio

You are in the right place.

➡️ You can easily send me a message and we’ll chat about your specific situation to understand how I can help.

Also, feel free to reach out for any other ideas.

📈

Thank you again for your valuable time.

Happy Investing,

Francesco - Business Invest