For those of you watching the stock market go blood red, a little perspective is necessary.
A correction is defined as a 10% drop from the high.
A bear market is defined as a 20% drop from the high.
The DOW (DJIA) peaked intraday at 36,952. Let’s say 37,000 for simplicity sake. That was on January 5, 2022. The all time high was only 2 weeks ago. A 10% drop would take it down 3,700 points to 33,300. Since January 5, we have fallen to an intraday low today of 34,230. The DOW would have to drop another 1,000 points to enter correction territory. So while the DOW has shed a lot of points in the last few days, it is still less than 10% off its all time high.
The NASDAQ is another matter entirely. The NASDAQ is very tech heavy, and tech stocks tend to be more volatile than the blue chip stocks in the DOW. The NASDAQ hit an intraday high of 16,212 on November 22. That was 2 months ago, a longer period of time. Let’s say 16,200 again for simplicity. The NASDAQ closed today at 13,769 at the low of the day. The NASDAQ is 15% off of the all-time high.
In the 2000 crash that led to the bear market, the NASDAQ started collapsing in March of 2000. The DOW did not fall apart until November of 2000. Again, tech stocks are more volatile. Bear markets normally last 12 to 18 months. This was a nasty bear market that lasted 3 years. On the flip side, the March 2020 bear market was the opposite extreme. Stocks dropped 40%, but one month later were back to normal.
Other things to think about: In a bull market, stocks do not go straight up. They go up in a jagged edge. Yet in a bear market, stocks can go straight down. The reason for this is that financial markets are motivated by 2 things: 1) Fear 2) Greed.
Fear is ALWAYS more powerful than greed. When things are going up, the big boys say “enough of this” and knock it down in the short run. Yet when things are dropping like a rock, the big boys are sitting in the same scared fetal position as everyone else, just with more money. Buying at the low seems smart, but when it comes to real money the big boys are like “I’m not touching this.” The expression is “Never try to catch a falling knife.”
There are always opportunities to get in and out of the stock market. Those who try to time the market often get clocked. Those who are patient frequently end up ok provided they invested in solid companies rather than speculative gambles.
Things are still too high for me to consider buying. I’d like to see a larger drop before doing any more buying. Yet I do not feel comfortable selling either. I could take profits, but I am in this for the long term. If something of mine drops tremendously, I’ll add to my positions.
For now I am in a holding pattern. In life, I am one of the least patient people you will ever meet. With my investing, I am incredibly patient. It is the only thing I am patient about.
I can afford to be patient because of my “time horizon.” As long as someone has at least 10-15 more years until retirement, they can afford to be patient. At 50, to quote the Rolling Stones, “Time is on my side.”
People over 70 should consider taking some profits off the table. People under 30 should just shut up and let it ride, again provided they are in sensible stocks to begin with.
There is no better long-term investment than the United States stock market. That has been proven for over a century. Rule 1 as a stock trader is to obey the pattern. Do what the stock tells you to do. Don’t argue with the market. Until the pattern changes, stick with the pattern. The trend is your friend. There is zero evidence that any other nation is in position to supplant the United States as the dominant global power any time soon.
America works. The stock market works. The optimists know that brighter days are ahead because we Americans will make it so. The pessimists grudgingly concede that we have the worst situation except for every other nation in worse shape. So even when things are awful we are the best by default.
Do not panic sell or panic buy. There will always be another opportunity. Now to hold my positions, check my portfolio thoroughly, and most likely make zero changes for now. When the evidence and data changes, I will change as well.
My overall philosophy remains the same:
1) Buy good companies
2) Roll over the dividends (unless you need the income)
3) Don’t sell (unless absolutely necessary)
4) Don’t die (don’t take crazy risks like bungee jumping)
eric