“Far more money has been lost by investors trying to anticipate a correction, than has been lost in corrections themselves.”
Many of my recent conversations with clients and prospective clients have been on the recent market highs, and many have asked will we get a pull back? The answer is yes, when? I don’t know, many of the events that have historically caused declines- like the summer of 2011 potential government shut down, the August 2013 potential attack on Syria, caused pullbacks of 6-19%, and now with similar recent situations we have seen very little volatility in the market. This seems like a good time to remind investors that volatility is normal, and a regular part of investing. One of my favorite charts on volatility is called “Staying the Course”
Each orange line shows the low for the year, and the blue shows where we finished for the year. What stands out? Every year, there is a decline or pull back of some sort; something that was a surprise to the market. But, in many years, the decline was short lived, and the market moved forward to finish in the positive. In the chart below showing year from 1980- Q1 2-17, 29 of the 37 years are positive (78%), one year came in at a flat 0%, and 7 of the years ended in the negative, or 18% of the time. However, EVERY SINGLE YEAR HAD A CORRECTION, there isn’t a single year that the market didn’t drop or pullback at some point. Most recent pullbacks? For 2016 it was in January and February when the price of oil plunged to around $20/barrel, and then in the summer with BREXIT, we had a smaller decline, but still a sudden and quick correction.
Peter Lynch’s quote on corrections makes a powerful statement. We don’t know when the corrections or pullbacks will come, and to anticipate them in a year like 2017, when the market has acted opposite to news than one would expect is impossible…..remember the Trump victory? Everyone was sure the market was going to plummet, and it did, from somewhere in the middle of the night when his victory was announced to about sometime later in the middle of the night, but by morning we saw a big reversal coming and the market actually closed up.
We can’t time the market, but we can put together a plan for you that gives you a high level of success to meet your goals over time, those goals that are most important to you. Volatility will return to the markets, and when it does it will likely feel bad, especially after an extended period of low volatility. Just remember it is a normal part of investing, and the best way to endure and move through is to Plan Wisely, Invest Confidently, so that you can go out and Enjoy Life!