The Truth About Investing at All-Time Highs

The Canadian and US stock markets have reached new all-time highs in 2026. If you're like lots of investors, you might get nervous about all-time highs. It feels like too much good news has to be followed by bad news. This is a cognitive bias called the gambler's fallacy, the belief that the probability

of a random event like tomorrow's stock market returns is influenced by yesterday's stock market returns.

There's a bit of nuance to this, but generally speaking, stock returns are pretty close to random. Lots of positive stock returns leading to an all-time high in the stock market doesn't really tell us much about future stock market returns. I'm Ben Felix, Chief Investment Officer at PWL Capital, and in this

video, I'm going to tell you why all-time highs in the stock market are nothing to fear, at least most of the time.

I'm going to start by talking about all-time highs in the level of stock market indices, which I'll also explain.

But, stick around for the second half of the video where I'll talk about market valuations, which is a different concept. At the time of recording, the US stock market has a cyclically adjusted price earnings ratio, which is a measure of market valuation, how expensive it is to buy the future

earnings of companies, close to the level that preceded the dot-com bust. Let me start by explaining what an all-time high in the stock market even means. Stock market indices like the S&P 500 for US large-cap stocks or the S&P TSX Composite for Canadian stocks are groups of stocks weighted by the market

value of the companies that are included in the index. They're designed to represent a stock market or a part of a stock market. To track an index's performance over time, each index has a base level. For example, the S&P 500 index has a base level of 10 starting in 1941-43.

Each day, the index's return is calculated based on the performance of the stocks in the index, and then a new index level is recorded. Over time, that number gets bigger when returns are positive and smaller when they're negative. Today, the level of the S&P 500 is over 7,000. Each time the level

of a major index surpasses its previous all-time high, the media tends to report on it. The funny thing though is that the level of the index is kind of meaningless. There are few issues. One is that index levels are typically calculated based on stock prices only, not dividends. They're price only

indices rather than total return indices. We would actually see more all-time highs if dividends were included in the index level calculations that are commonly reported on. Academic research on this shows that the price only presentation of index data affects how people think about the stock market.

For example, for a given level of returns, newspaper coverage is more negative when dividends are higher because the price drops when a dividend is paid. But economically, it's not a bad thing because you received the price went down, but you received the dividend. It's kind of a weird quirk, but it just shows how