Why you shouldn’t fear ASX 200 hitting all-time highs

Are you worried that share markets are smashing records at the moment and that can only mean there is a crash coming?

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A worried man chews his fingers, indicating a share price crash or drop on the ASX 200

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Share markets, including the S&P/ASX 200 Index (ASX: XJO), seem to be hitting a new all-time high every second day at the moment.

In fact, the ASX 200 has smashed its all-time record repeatedly this month. The index on Friday morning sat at 7,625 points, which is almost 4% up just in August.

Of course, the irony is that such unprecedented boom times make many share investors very nervous. Racked with anxiety, in fact.

Ophir Asset Management co-founders Andrew Mitchell and Steven Ng blame the media.

“Newspapers love to exclaim when share markets have made new highs. They often add that the gains surely can’t last, and that a crash is around the corner,” they wrote in a letter to investors. 

“Sensationalism and fear sells.”

No one knows where the share market is going in the short term

The simple fact is, no one can tell the future.

This is a basic rational axiom that is easily forgotten by anyone swept into the emotions of the day-to-day movements in share markets.

So those doom-sayers have just as little idea as anyone else.

“To paraphrase the great economist John Kenneth Galbraith, when it comes to short-term forecasting, there are only two groups of people – those who don’t know, and those who don’t know they don’t know!” Ng and Mitchell said.

“Peter Lynch, the famous manager of the Magellan Fund at Fidelity, perhaps summed it up best when he said: ‘Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.'”

But everyone knows where it’s going in the long run

The comforting thing, though, is that history is on their side for long-term investors.

Regardless of any short-term highs or lows, over several years the market will move in an upward direction, according to Ng and Mitchell.

“The share market is a game skewed in your favour,” they wrote.

“As a whole, you are exposed to the collective ingenuity of individuals and businesses constantly coming up with new ideas and better and smarter ways of producing goods and services. This is why markets go up over time.”

Whether the ASX 200 is hitting all-time highs or suffering a panic-induced meltdown, there will always be something to worry about.

At highs, people will worry a correction is around the corner. 

At lows, investors will panic about how much lower it can go.

“But we are firmly in the camp of, ‘It’s time in the share market, not timing the share market’,” they wrote.

You have to be in it to win it

So knowing that there will always be short-term excuses to stay out of the market, the best strategy is to dive in, hold on and not concern yourself with short-term peaks and troughs.

Ng and Mitchell pointed out that the Dow Jones Industrial Average (INDEXDJX: .DJI) has tripled since 2008, despite suffering through the global financial crisis and COVID.

“If you get constantly worried out of the share market, or think you can consistently and accurately time your entry and exit, you risk sacrificing all those potential gains the share market has to offer.”

The portfolio managers said that they practise what they preach. They do not fiddle with their cash-to-shares ratio to adapt to market movements.

“We think that activity is more likely to subtract value than add,” said Ng and Mitchell.

“The reality is share markets spend most of their time at or quite close to all-time highs. We are as happy as ever to remain close to fully invested, and to personally keep reinvesting any excess cash from our business into our open funds.”

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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