The Misguided Fear of Buying at Market Highs

The stock market has always been a theater of human emotion. Fear and greed, in particular, dominate investor behavior, often leading to decisions that defy logic. One of the most persistent myths in investing is the belief that buying at market highs is inherently risky. This fear is rooted in the idea that high prices signal overvaluation and inevitable collapse. However, a deeper analysis of historical data—particularly the CNN Fear & Greed Index—reveals a different narrative. By understanding the cyclical nature of market sentiment and the long-term resilience of equities, investors can challenge emotional biases and adopt strategies that thrive in volatility.

The Illusion of "Highs" and the Role of Sentiment

The Fear & Greed Index, which aggregates seven market indicators, provides a unique lens to dissect investor psychology. From 2015 to 2025, the index reached "extreme greed" levels (above 90) on 39 days, with the highest value hitting 97 in 2020. These peaks often coincided with periods of euphoria, such as the 2017 tech boom, the 2019 post-pandemic rebound, and the 2021 meme stock frenzy. Yet, history shows that these moments of extreme optimism were frequently followed by corrections. For example, in 2017, the S&P 500 corrected by 10% after the index peaked at 95, and in 2020, a 30% selloff followed the 97 high.

The key insight here is not to avoid buying at highs but to recognize that "highs" are subjective. A stock's price is not a fixed value but a reflection of collective sentiment. When the Fear & Greed Index signals extreme greed, it often marks a contrarian opportunity. Investors who panic-sell during these peaks miss out on the subsequent recovery. Consider the 2019 correction: those who sold at the index's 93 high would have missed the 2020 rebound, which erased the 2018 bear market losses in just six months.

The Long-Term Resilience of Equities

Critics of buying at highs often cite short-term volatility as a reason to avoid risk. However, the data tells a different story. From 2015 to 2025, the S&P 500 delivered an average annual return of 9.2%, even after accounting for corrections. For instance, the 2020 selloff, triggered by the index's 97 peak, was followed by a 60% rebound in 2021. Similarly, the 2018 bear market, which saw the index dip into "extreme fear" territory, was fully recovered by 2019.

The resilience of equities lies in their ability to compound over time. A long-term investor who bought at the 2017 peak and held through the 2018 correction would have seen their portfolio recover by 2019 and outperform those who sold in panic. This pattern repeats itself across cycles: volatility is inevitable, but the market's upward trajectory is inescapable for those with patience.

Strategic Advantages of Resilience-Focused Investing

To leverage the Fear & Greed Index effectively, investors must adopt a framework that prioritizes resilience over timing. Here are three strategies:

1. Contrarian Positioning: When the index enters "extreme greed" territory, consider rebalancing portfolios toward defensive sectors (e.g., utilities, healthcare) or high-quality dividend stocks. For example, in 2021, as the index hit 77, investors who shifted into value stocks and away from overvalued tech positions capitalized on the 2022 rotation.

2. Dollar-Cost Averaging (DCA): Instead of trying to time the market, use DCA to accumulate shares consistently. Historical data shows that investors who bought monthly during the 2017–2019 bull market outperformed those who sold at the 2018 peak.

3. Risk Management: Use the index to adjust leverage and hedging strategies. During extreme greed periods, reduce exposure to speculative assets and increase cash reserves. Conversely, during "extreme fear" (e.g., the 2020 crash), allocate to undervalued equities with strong fundamentals.

Take Tesla (TSLA), for instance. In 2021, the stock hit a peak of $314, driven by speculative fervor. A short-term investor might have sold at that high, only to miss the 2022 rebound to $250 and the 2023 surge to $280. A long-term holder, however, would have weathered the volatility and seen a 15% gain over three years. This underscores the importance of focusing on fundamentals rather than short-term noise.

Conclusion: Embrace Volatility, Reject Emotional Bias

The fear of buying at market highs is a self-fulfilling prophecy for those who let emotion dictate their decisions. By analyzing the Fear & Greed Index and historical patterns, investors can see that volatility is a feature of the market, not a bug. Long-term resilience-focused strategies—contrarian positioning, DCA, and disciplined risk management—allow investors to navigate corrections and capitalize on recoveries.

The next time the market hits a "high," ask yourself: Is this a sign of overvaluation, or a signal to stay the course? The answer lies not in the price itself, but in the ability to separate noise from signal. As the data from 2015 to 2025 demonstrates, the most successful investors are those who resist the urge to panic and instead build portfolios designed to endure.