Why You Need to Keep Investing No Matter What

The case for investing.

In this infamous blog post on OfDollars And Data - which is a great financial blog btw I will link below - he gives a strong argument as to why the retail investor should, as the title of the blog suggests, to just keep buying.

https://ofdollarsanddata.com/just-keep-buying/

His main point is that the quote ‘Rather than worry about whether now is the right time to buy, just keep buying. Market high or market low, just keep buying.’

He does point out that as stocks get more expensive, and he uses the P/E ratio to gauge whether or not a stock is expensive, their future returns generally decrease - this makes sense, if you buy an overvalued stock, it probably wont return as high as if you get in with a margin of safety.

You can see that as PE ratio increase (stocks get more expensive), theres a negative correlation here with your returns for the next 5 years. There are more red dots in the 30 to 40 PE range than the 10-20 range. Red represents a negative return for the next 5 years.

But, here’s the fascinating thing - the author Nick says as long as you hold for a longer period of time - watch what happens to your real returns EVEN if you bought at an overvalued price.

Looking at this interactive GIF, jif, graphic - you can see that as the years pass by, 5,10,15,20,25, 30 etc - the number of red dots decreases. He states that “over any 20 year period U.S. stocks have had no real negative returns (when including dividends), and over a 30 year period the returns have generally converged despite some dispersion.”

So that basically tells us that to accumulate our wealth in an aggressive manner, we should keep buying - no matter what. He uses an excellent example that if you search for “stock market overvalued 2012” into google, many articles will come up detailing what investors believed at the time - that the market was overpriced by 50% in some cases. But look at this graph of the S&P 500. In 2012 it was trading for 1400~ish levels. If you had believed it was overpriced then you would have missed out on some serious gains as 10+ years later we’re nearly 3x what we were the overpriced levels.