Today we’re going to talk all about you and how you whipsaw investors into panic with stock market corrections. What exactly is a correction anyway?
To some this sounds like a simple question; to others, and judging on how they act with their investing decisions, it’s clearly not.
By definition a bear market is one that has stock prices falling by 20% or more and lasts for at least two months. A stock market correction is much shorter and is typically fast in nature. Corrections often come on the heels of investor pessimism or after a bearish story that later is found to be a relatively meaningless event. In other words, corrections bring a whole different sort of emotion to the game than a bear market.
Every so often we come across an investment that grabs our attention. In this case we would like to turn the clock back a bit and revisit a time when the sky was falling and “Mr. Market” seemed to have it in for all of us regardless of where you tried to put your money. That was in 2008 and without reliving too many painful memories or details…let’s just simply refresh you on the performance of certain asset classes/indexes that year:
If you had any Bond exposure in your portfolio that’s probably all that you had to celebrate as they at least turned in a positive +5.24%. Most people realistically didn’t have enough Bond exposure but flocked to them in 2009. They were rewarded with another positive year with +5.93%. The problem with that, however, is that the areas they just cut bait on (stocks) returned the following: