Generally, most people believe that over time the stock market goes up, but when it does it makes many people nervous. Turn on the TV or read any financial news and your bound to hear an analyst or commentator saying the market is “too high”, “valuations are stretched” or “overvalued” and, of course…is overdue for a correction.
A quick Google search of the words “Stock Market correction 2017” yields some 17,5000,000 results. Here’s some of the top results…
Jun 23, 2017: Be Prepared For A Global Stock Market Correction In The Second Half
Jun 9, 2017: JPMorgan sees a ‘summer top’ and market correction into the fall
May 27, 2017: Investors need to brace for a stock market correction – CNBC.com
Sounds scary, huh? We better do something, right? Hold on, let’s try another Google search but replace “2017” with “2016”. Here’s a selection (with the stock markets % return since that date)…
Sep 11, 2016:
A ‘perfect storm’ correction is coming, and nothing can stop it: Economist
Stocks* up 18.3% since
Apr 20, 2016:
Prediction of Stock Market Crash 2016
Stocks* up 20.8% since
Jan 13, 2016:
Analyst: Here Comes the Biggest Stock Market Crash in a Generation
Stocks* up 35.1% since
Looks like they were saying the same thing last year. It seems the higher the stock market goes, the louder the chorus gets that it’s all going to come to an end. One of the most amusing is the “legendary” Jim Rogers. Mr. Rogers made a ton of money after founding the Quantum Fund with George Soros in the 1970s. Here’s some of his most interesting comments that made headlines (and the market % return since)…
Nov 9, 2011: 100% Chance of Crisis, Worse Than 2008: Jim Rogers (up 127.3%)
Jun 29, 2012: Jim Rogers: It’s Going To Get Really “Bad After The Next Election” (up 102.2%)
Mar 28, 2013: Jim Rogers Warns: “You Better Run for the Hills!” (up 72.6%)
Oct 12, 2014: JIM ROGERS – Sell Everything & Run For Your Lives (up 37.6%)
Jun 26, 2015: Jim Rogers: “We’re Overdue” for a Stock Market Crash (up 23.0%)
Jul 21, 2016: $68 TRILLION “BIBLICAL CRASH” Dead Ahead? Jim Rogers Issues a DIRE WARNING (up 16.6%)
Jun 8, 2017: THE BOTTOM LINE: Legendary investor Jim Rogers expects the worst crash in our lifetime (up 1.8%)
Even if he was right in the short term and there was a correction after one (of his many) dire warnings, if you ignored the noise, you’d be up 127% over the last 6 years. Corrections come and corrections go. To borrow from James Mayer’s recent market commentary:
The secret to long term investing success in stocks is not about being out of stocks when bear markets start; it is about being in the stock market when bull markets begin. If you got out of stocks in 2008 early enough to avoid most of the damage of the 2007-2009 bear market (and very few did), you didn’t reap the benefit if you didn’t get back by mid-2009, at the very bottom of the actual recession. By January 2010, the S&P 500 had recovered all its losses from August 2008. Thus, if you sold in August before Lehman failed, before Merrill Lynch was forcibly taken over by Bank of America, before AIG wiped out and before the government takeovers of Fannie Mae and Freddie Mac, that decision was only successful if you were back in by January 2010. Today stock prices are more than 100% higher than they were then. Are you still waiting for the right time to get back in?
The conclusion from all this is that fearfully staying on the sidelines can be quite costly. Even if you are correct that tomorrow will offer a better buying point at 10-20% off, will you buy then or wait because either the news environment is sour, or you think the correction has further to run?
Investment management is all about managing your investments in a disciplined way. Assuming our economy will continue to grow over time as both population and productivity rise, patience is on your side. Emotions are the devil to successful investment. Discipline is your friend. Stocks go up and they go down. You can’t just own them on up days. But just as sunshine follows rain, there will always be another bull market.
*Note: where mentioned, Stocks Return % = S&P 500 Total Return