Should you invest in stocks hitting all-time highs?

"As usual, quality, as for anything in life and especially stocks, normally comes with a premium price tag," argues Ben Griffiths, managing director and senior portfolio manager at Eley Griffiths Group. 

"Seasoned investors get in the habit of paying above average price-to-earnings ratios for companies that offer above average quality characteristics and above average earnings prospects. That almost always comes at a premium price. That's just one of the truisms of the market." 

Coming off the back of reporting season, we've seen many stocks soar to new highs (and some, sink to new lows). 

Take Brambles (ASX: BXB) or Cochlear (ASX: COH), for example, which have skyrocketed on their latest results. 

I remember, clear as day, the moment Apple (NASDAQ: AAPL) became a US$1 trillion company. At the time, I felt like I was too late, that I'd missed the boat. I had FOMO of a massive wealth-building opportunity before FOMO was really even a thing. 

And so, I didn't invest. 

The company has gone on to become a nearly US$3 trillion juggernaut. Had I invested then, I would have enjoyed a nearly 200% return on my initial investment. 

Maybe it's just me, but I feel like, as investors, we often get sucked into the feeling that valuation is absolutely, irrevocably key. In this way, we are often drawn to low PE stocks, or stocks that have recently been beaten down, in the hope (misguided or otherwise) that the market has gotten it wrong and a re-rating could be on the horizon. 

But is investing in stocks at or near their highs perhaps a better strategy? After all, it was Newton who found that objects at rest stay at rest and objects in motion stay in motion. 

American fund manager, Richard Driehaus, is considered to be the father of momentum investing. He was the founder and chairman of Driehaus Capital Management, a strategy that reportedly delivered returns of 30% per annum after it was set up in 1982. 

Momentum investors believe that you can profit by sticking to a trend until its conclusion. Like a snowball rolling down a hill, momentum investors argue that stocks that are rising in price will attract more investment, driving the share price even higher. 

Driehaus, in particular, sought out small to mid-cap companies with increasing earnings, positive earnings surprises and revisions and short-term share price strength. From the 30% p.a. returns, I can only assume this strategy served him well. 

For more of a local take, I spoke to Australia's very own small-cap legend, Ben Griffiths, for his thoughts on momentum, the stocks he believes can sustain highs, and why he believes the worst thing investors can do is sell their winners. 

"You can't make money without momentum"

While pricing discipline is important, Griffiths believes momentum is really what the investing business is all about. 

The converse applies too. One of the worst reasons to buy a stock is its share price has gone down. 

"What share price movements should do is prompt investors to investigate what has happened," Griffiths says. "What is the price telling you? What is behind the movement?" 

"When a stock has a low PE, it can look a bit like a beacon to buy that stock. But you need to be aware of that rating and what it's telling you." 

A good example, according to Griffiths, is Elders (ASX: ELD). (see below)

Good question, I had the same one myself.