Rethinking When to Invest: All-Time Highs Can Be Rational

Conventional wisdom says “buy low, sell high.” Our full-history analysis of the SPDR S&P 500 ETF Trust (SPY) from inception (1993) through August 11, 2025, shows that waiting for pullbacks can materially dilute forward returns, while allocating on all-time-high (ATH) days has historically produced higher one-year returns—even after controlling for sample bias. Specifically, the average one-year return when buying any day was ~9.81%, non-ATH days ~8.66%, and ATH days ~20.53% (continuously compounded, close-to-close). Put simply: in rising equity regimes, “buying strength” has outperformed “buying dips.”

So what? For long-horizon, policy-diversified portfolios, the actionable default is to allocate on schedule (or on breakouts/ATHs) rather than delay for “the dip.” Use risk-budgeting, not market-timing, to manage drawdowns.

Investment Thesis

1. Structural outperformance of the index vs. most active managers suggests benchmark-centric allocations are an efficient core. SPIVA repeatedly documents that a majority of U.S. large-cap managers underperform net of fees over multi-year horizons.
2. Market highs are a feature, not a bug, of positive-drift assets. Decades of S&P 500 data show that new highs are common in upward-biased return series and do not reliably signal impending negative returns.
3. Empirical edge from buying strength. In our SPY backtest (2/1/1993–8/11/2025, close-to-close, continuous compounding), the one-year forward return from ATH entry days (~20.53%) exceeded the baseline (~9.81%) and non-ATH entries (~8.66%). The positive relationship between a year’s share of ATH days and its annual return had a ~0.56 correlation (rising to >0.60 when excluding zero-ATH years), indicating momentum/leadership regimes often persist within the year.

So what? De-risk by portfolio design, not by entry delay. When equity risk is warranted by the macro/valuation backdrop, executing at highs is rational, provided the portfolio’s risk is balanced across assets and hedges.

Analytical Deep Dive

A. Sample, Method, and Data Integrity

• Instrument: SPY (S&P 500 exposure via UIT). Inception: Jan 22, 1993.
• Window: Inception through Aug 11, 2025 (inclusive), using daily close-to-close returns.
• Event tags:
  • ATH day: day’s close sets a new all-time closing high.
  • Non-ATH day: all other trading days.
• Returns: Continuously compounded forward returns over 1Y, with similar patterns observed across longer horizons (edge compresses with time).
• Data source: Ychart daily history. Our calculations are Pries Capital proprietary.

Why continuous compounding? It yields additive log-returns, improving comparability across event buckets. Results are directionally consistent with simple returns.

B. What the History Shows

1. ATH Frequency and Full-Year Returns

• Twelve of 32 calendar years registered zero ATHs, typically aligned with cyclical or valuation-driven consolidations.
• Years with many ATH days (e.g., ~20% of sessions) tended to post meaningfully stronger annual returns.
• Correlation between % of ATH days and annual return ≈ +0.56 (≈ +0.60 excluding zero-ATH years).

Actionable Insight: In practice, sustained leadership regimes (many ATHs) argue against timing out. Maintain exposure and control risk elsewhere (position sizing, hedges).

2. Entry-Day Condition and Forward Returns

• Any-day baseline (1Y): ~9.81%.
• Non-ATH day (1Y): ~8.66% (≈ –115 bps vs. baseline).
• ATH day (1Y): ~20.53% (≈ +1,072 bps vs. baseline; >2x baseline).
• Edge persists across multi-year holds but decays with horizon as regime effects diversify.

Actionable Insight: Don’t wait for weakness to add core beta. If the strategic allocation says “own equities,” executing at strength is historically favorable vs. indefinite dip-waiting.

3. Context: Why Could This Be True?

• Compounding & Trend: Breakouts often coincide with breadth/thrust and macro support (e.g., easing financial conditions, productivity spurts).
• Career/flows dynamics: ATHs can accelerate passive/benchmark-aware flows, sustaining momentum.
• Opportunity cost: Sitting in cash during uptrends forfeits drift and can be hard to recoup.

External Corroboration: DFA finds no statistical penalty to buying at highs vs. other times.

C. Why SPY (vs. Active or Other S&P 500 Trackers)?

• Benchmark purity/liquidity: SPY is the oldest U.S. ETF and remains exceptionally liquid—material for execution.
• Tracking vs. peers: VOO often shows slightly lower expense ratio and tighter tracking error; SPY’s edge is depth/liquidity. Tradeoffs are small for long-term investors; implementation needs (size/liquidity) often favor SPY.

Actionable Insight: For buy-and-hold, VOO/IVV can minimize fees/drag; for large tactical blocks/derivatives overlays, SPY liquidity is compelling.

Key Risks & Mitigants

1. Interest-Rate / Valuation Compression Risk

• Risk: Higher real yields or growth scares can compress multiples from stretched zones, turning ATH entries into near-term drawdowns.
• Mitigants (Pries Capital):
  • Barbell duration (own “belly” duration as a hedge);
  • Quality tilt in equities;
  • Disciplined rebalance bands to harvest volatility.

2. Macro Shock / Policy Risk

• Risk: Geopolitics, tariffs, fiscal cliffs, or abrupt policy pivots can fracture leadership and stall ATH regimes.
• Mitigants:
  • Diversifiers (measured allocation to gold/commodities);
  • Systematic overlays (protective puts/collars around event risk);
  • Geographic/sector diversification within equity.

3. Liquidity / Gap Risk

• Risk: Sudden gaps (e.g., overnight) can render stop-outs costly; buying strength can coincide with crowded positioning.
• Mitigants:
  • Staggered entries (T+1/T+5 ladders);
  • Position limits tied to portfolio VAR;
  • Use of SPY depth for execution and index futures for rapid de-risking.

4. Model/Backtest Risk

• Risk: Results are period-dependent and hinge on U.S. large-cap dominance since 1993.
• Mitigants:
  • Cross-asset validation and non-U.S. index tests;
  • Maintain macro-diversified core (equities, duration, real assets, cash).

Pries Capital Conclusion

• Primary: If your IPS calls for equity exposure, allocate on schedule. Do not delay waiting for a perfect entry. If faced with a breakout/ATH, execute rather than deferring to a hypothetical pullback.
• Implementation:
  1. Core beta: SPY/VOO/IVV—choose to fit liquidity (SPY) vs. fee/tracking (VOO/IVV).
  2. Risk budget: Size equity to target volatility; pair with duration and measured gold for drawdown resilience.
  3. Overlays: For large tickets or event windows, employ collars/puts funded by covered calls to bound tail risk.

• Ongoing discipline: Rebalance to policy; avoid tactical cash hoards predicated on timing the next dip.

Appendix: Notes on Data & Interpretation

• Figures cited (9.81%, 8.66%, 20.53%; correlations ~0.56/ >0.60) reflect Pries Capital calculations on daily close-to-close, continuously compounded returns for SPY from 1993-02-01 to 2025-08-11 (using Ychart daily data). Variations using simple returns or slightly different date cutoffs deliver qualitatively similar conclusions. *See SPIVA Scorecard at https://www.spglobal.com/ spdji/en/spiva/article/spiva-us/ **SPY and VOO both have the lowest tracking errors of all index ETFs and while the predecessor mutual fund of VOO goes back to Sep. 1, 1976, SPY is the oldest S&P 500 tracking ETF. SPY’s inception date is Feb. 1, 1993.
• Index/ETF caveat: Indices are not directly investable; ETFs have expenses, structure, and tracking differences that affect realized returns.

Disclosures: Securities and funds mentioned are illustrations or for study and presented for educational purposes only and does not constitute investment advice or an offer to buy/sell any security. They are not to be considered as endorsed or recommended for purchase by Pries Capital. The performance data quoted presents past performance; past performance does not guarantee future results; the investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance data quoted. Investing involves risk, including loss of principal. Investors should conduct their own review and analysis of any company of interest before making an investment decision. Securities and funds discussed may be held by the writer in his personal portfolio or those of his clients. The directional conclusion (no penalty to buying ATHs; potential edge to strength) is well supported by both our backtest and third-party research. The exact magnitudes (e.g., +1,072 bps vs. baseline) are sample-specific and sensitive to methodology and window selection.