I was in high school when James Cameron’s Titanic came out in theaters. It’s difficult to describe how spectacularly this movie exploded across the cultural landscape. It played for months. Mall food courts and arcades played that Celine Dion song on repeat. Though I tried to resist it for weeks, I eventually saw this movie for the same reason I started watching Dawson’s Creek: it was the only thing girls were talking about. And I wanted to talk to girls.
One female friend saw the movie every Friday night for weeks. I’ll never forget her Dad’s deadpan joke, delivered on cue each week when she got home (“did it sink this time?”). I eventually saw the movie with her and some of her friends. As we sat at Friendly’s afterwards, eating ice cream and hashing out the film, we marveled that we were living through history. News outlets and, frankly, the film’s own marketing team, trumpeted the movie’s “world record-breaking sales.” Out of all the decades of movie magic, going back to the early the 20th century, we were teenagers when the highest grossing film of all time was released. Would a movie ever do close to as well? Would we be telling our grandchildren about this moment?
Twelve years later, Avatar came out and crushed Titanic’s record at the box office. I don’t want to disparage Leo and Kate; twelve years is a decent reign, all things considered. But what’s more interesting is what happened to the top twenty highest grossing movies list. As shown in this Wikipedia article, a full sixteen of the high grossing movies of all time were released after 2000. Of those, twelve were released since 2010. Only a few are from the 1990’s, and none are from before the 1980’s. I’m not a grandfather yet, but I don’t think I’ll even be telling my children about Titanic
What are we supposed to do with this information? Should we conclude that twelve of the most amazing, worthiest-of-our-hard-earned-dollars movies ever were made after 2010? When that list includes not one, not two, but three Transformers movies? Were all movies made before 1990 complete garbage?
To all of these questions: no, no, no. Of course not. There are many forces behind the constant treadmill of record-breaking movie sales. Inflation increases the price of movie tickets over time such that no movie made in 1950 could ever top a recent blockbuster in real sales. As the world becomes more connected, movie studios have pushed relentlessly into foreign markets, trying to make movies that will appeal not to just American teenagers who love Leonardo DiCaprio, but to the entire world. Today the focus is on worldwide, not national gross. These are just the two largest factors. There are other forces such as population increases and technologies like IMAX and 3D, which sell at a premium. All of these elements have combined over time to ratchet up ticket sales.
In the end, gross ticket sales are a terrible way to judge the success of a movie against other movies, no matter which way you slice it. Unlike my teenage self, I no longer get excited when I hear about record-setting box office grosses.
I feel the same way when I hear that the stock market is at an “All-time High.”
We’ve been hearing this a lot lately. Since 2009, the S&P 500 – a good proxy for the U.S. stock market - has staged a relentless climb from the 600’s to where it sits today in the 2,000-range. Since 2013, it has been setting new highs almost monthly. This causes a lot of chatter. I’ve recently heard someone say, “the market is at an all-time high, I’ve got to sell.” Or this, which I hear constantly: “I have a bunch of money in a savings account doing nothing, but I’m afraid to put my money in at a market high.” This last quote is usually said by someone who wouldn’t even be thinking of investing if they hadn’t been inundated with news about the latest hot stock market.
But we’d be less surprised if we understood how the stock market resembled box office grosses. Inflation, innovation, and increasing international interconnectedness make it more likely than not that, at any given time, we’ll be living in or near a time of an ‘all time high’.
Here’s a chart of the S&P 500 since 1975
Without even analyzing the numbers, I can see dozens of points where the S&P 500 had ‘never been higher’. Make no mistake: at each of these points, plenty of people chose not to invest because they didn’t want to ‘buy high’. By following this philosophy, all of them lost money.
Does this mean that stocks will only ever go up? Of course not. Stocks are by definition a bumpy ride. Is this bumpy but amazing ride guaranteed to last forever? Again, no. Societal changes could completely upend the stock market the same way that new technology could make movie theaters obsolete (some would argue this is already happening). But I don’t think we can predict a change of this magnitude, and therefore I don’t think it’s worth worrying about.
Analysts smarter than myself could trot out other numbers that more accurately predict whether the stock market is ‘expensive’ or ‘cheap.’ The Shiller P/E in particular seems to have some predictive ability in the longer term (though even that has its detractors). But one number that no analyst puts meaning behind is the same you hear over and over in the media: the price of the Dow or S&P 500.
Simply hearing “all time high” should not trigger a fight or flight response toward dumping your investments. If you want to buy and sell stocks with regularity, there are dozens of statistics more meaningful than the raw ‘price’ of the market, just as there are better ways to judge a movie’s popularity in history than looking at ticket grosses.
For me, news of an all time high stock market isn’t exciting, nor is it worrying. I don’t buy extra stocks, and I certainly don’t sell any. I have my automatic investments set up buying the stuff that lets me sleep at night in an amount I can afford, and I don’t touch them.In the end, I think this is the best plan for long-term investors – and everyone saving for retirement is a long-term investor. Set your plan into motion and tune out the 24-hour news. A record stock market, like record ticket sales, is great for headlines and talking-head bloviating, but it does not in itself mean anything to the investor. It will rise again, just as surely as, when you re-watch Titanic, the boat will sink.