Should You Buy Stocks at All-Time Highs? What Valuations Actually Say About the Next 10 Years

Should you buy stocks right now, at all-time highs?

Short answer: all-time highs are not the problem — the price you pay relative to value is. And on that measure, today's market is priced for one of the weakest decades in history. That doesn't mean sell everything; it means stay invested but get very selective.

I hear the objection constantly: "Why would you buy a market at all-time highs?" Honestly, all-time highs by themselves tell you almost nothing. In the late 1980s stocks were hitting all-time highs and were still undervalued. It's never about the high — it's about price versus value.

So let's take the emotion out and look at the actual price tag, because this is where it gets serious.

Measuring stick #1: the Buffett indicator is at a record

The total value of the US stock market compared to the size of the US economy is sitting at basically the highest level in history.

This is Buffett's favorite gauge — take the whole market's value and compare it to GDP, everything the country produces in a year. When stocks are worth far more than the entire economy, that's a warning. Right now the reading is higher than before 2008, higher than before the dot-com crash, and up near 1928 — the year before the Great Depression, when stocks eventually fell 86%.

Measuring stick #2: the Shiller P/E is above 40

The 10-year cyclically adjusted P/E ratio is at its second-highest level in history, beaten only by the dot-com bubble.

Don't let the name scare you. The Shiller P/E just smooths company profits over 10 years so one weird year doesn't fool you, then asks how much people are paying for each dollar of those profits. Historically, every time this number climbed above roughly 26 to 30, it led to a really rough 10 to 12 years. Today it's over 40. In 2000 it hit 44 — and the S&P didn't durably reclaim its 2000 level until 2012.

What this means for your actual money

Starting from valuations this stretched, the next decade of returns has historically landed in a narrow, disappointing band — roughly between +2% and -2% a year.

Let that sink in. From prices like today's, the following decade has usually given you close to nothing, or even a small loss, before you even adjust for inflation.

To make it real: imagine you put $10,000 in today. In a normal decade you might reasonably hope to double it, maybe a bit more. But starting from valuations this stretched, history says you could look up in 10 years and have barely more than you started with — or even a little less. The money isn't gone. But an entire decade of growth could be. That's the real cost of overpaying, and it usually doesn't look like a dramatic crash. It looks like a long, quiet decade of going nowhere while you wait for the price to make sense again.

This is exactly what Howard Marks — who runs Oaktree Capital and wrote Mastering the Market Cycle — hammers again and again: you can't control what happens, but the price you pay absolutely controls your future return. Buy when things are cheap and hated and the odds swing in your favor. Not anything cheap — the beaten-down names where the fundamentals are still good. As he puts it, you can never know exactly what tomorrow brings, but you can absolutely know when you're dressed for the wrong season.

So what do you actually do?

Stay invested, but get selective — that's the whole answer, and it's simpler than it sounds.

Timing the market is a loser's game, and an expensive market can keep climbing for years, so hiding entirely in cash is its own mistake. Here's the balance I use:

• For broad index money — keep buying steadily, month after month, no matter what the headlines say. This is the right approach for long-term retirement money, and I do it myself.
• For individual stocks — demand value. Figure out what a business is actually worth and refuse to overpay, no matter how exciting the story or how far the stock has run.

Before you buy anything, roughly estimate what it's worth and compare that to what it costs. If a wonderful business is trading at a ridiculous price, you wait. And when a good business gets thrown out with the bathwater — like those hated value names the smart money has been buying — that's exactly when you lean in. You let the price come to you; you never chase it.

And if this expensive index really does deliver a weak decade, that doesn't mean you're stuck earning nothing. It means you look where others aren't — smaller, cheaper, often-forgotten corners of the market like the Russell 2000, which even from an overpriced starting point could be one of the smarter places to be for the decade ahead.

FAQ

Q: What exactly is the Buffett indicator? A: It's the total value of the US stock market divided by US GDP. When the market is worth far more than the entire economy produces in a year, it signals stocks are historically expensive. Today it's near the highest level ever recorded.

Q: Does a high Shiller P/E mean a crash is coming? A: No. It's not a timing tool. A high Shiller P/E historically points to weak long-term returns — often a disappointing 10 to 12 years — but says nothing about what happens next month or next year.

Q: If the next decade could be weak, should I just sit in cash? A: History says no. Timing the market is a loser's game and expensive markets can climb for years. The better play is to keep dollar-cost-averaging into broad index funds, while being far more selective and valuation-driven on individual stocks.

Q: How do I actually value a stock before buying? A: Roughly estimate what the business is worth based on its future earnings and reasonable assumptions, then compare that to the current price. If the price is well below your estimate of value, the odds tilt in your favor; if it's far above, you wait.