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Should investors buy stocks at record highs? ‘Buyer beware,’ says one trader

One trader is breaking down decades of data to decide what to do after the tandem all-time highs by the Dow, the S&P 500 and the Nasdaq.

The indexes all reached record levels on Thursday, the first time since 1999.

During a "Behind the Trade" special, Steve Grasso began by tracing the Nasdaq back to 1999 and urged traders to exercise caution.

"The Nasdaq composite made a new high and then it actually ran another 26 percent," the CNBC "Fast Money" trader said. "Then, it eclipsed those profits and then some, [falling] 80 percent."

Grasso noted that, for traders who were exposed to the Nasdaq, it took a lot of volatility over the next 17 years before the market got to its current levels — and for a meager gain, at that.

Meanwhile, when it comes to the Dow Jones industrial average, "you didn't have that head-fake run-up … but you did get that loss when it traded down 38 percent."

However, where the Dow differs from the Nasdaq is that, from the highs of 1999 to the highs of 2016, a buy-and-hold trader would have netted profits of 58 percent.

Lastly, Grasso took a look at the S&P 500 and noted that not long after the highs of 1999, the index experienced a rapid 50 percent drop. But when tracing a line from the two highs of the last 17 years, a buy-and-hold trader would have enjoyed gains of 40 percent.

"Here's the problem," concluded Grasso. "You can hold and, longer term, I think you'll be OK. But, what you need to know is that the support [in all three indexes] is probably 30 to 40 percent lower than where it is now," since that's how far the indices have shown they can fall after hitting records."

"Buyer beware," he said. "If you're OK taking a losses for longer-term gains, so be it."