How Common are Corrections?


We have been talking about a stock market correction for the last year and a half, and here we are in the midst of it. The market is turbulent with major swings taking place daily and intraday. We recognize that market corrections are normal and expected; however, the rapidity of the decline is a bit out of the norm. According to the update put out by CTC’s investment consultants, Taiber Kosmala, a 10% decline in 4 days has happened 9 times in the last 80 years. But a 10% market correction happens on average every 14-15 months, looking back on a century of market data.

During these times of market stress, we want to remember that these corrections are expected and not to be feared. The last thing we want to do when stressed is to make a decision out of fear. We will not succumb to fear or be swayed by the clamor in the daily media drive for attention. We will remain clear-eyed in our focus on your goals, and the long-term objectives for your portfolios.

As we focus on the long-term, we recognize that for the vast majority of our clients, a well-diversified stock portfolio, combined with a stabilizing investment in high quality bonds, provides a high probability of long-term success. That means standing firm on the plan even in the midst of turbulence. That means staying committed to the long-term growth potential of equities even when the short-term looks scary. Long-term success means keeping the long-term lens on everything we do.

At this point we do not know how long the correction will last. The last two 10% declines – one in 2010 and one in 2011 – lasted 70 days and 157 days, respectively. No one knows if this correction will be similar. We do know that there is good reason to be optimistic and no reason to give into fear.

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