Stock Market Correction?
November 17th 2014, by Lyle E. Hershey
I’m a huge fan of the Philadelphia Eagles, and my intrigue with the team goes beyond the game itself. I generally read any Eagles article I can find and especially after a big win. After a recent victory their head coach, Chip Kelly, said in his press conference, “I say praise and blame is all the same. If you let outside noise affect you, then that means you value their opinion more than you value your own opinion. If that’s the case, then your life is going to be just like this every single day… You don’t get confidence because someone you don’t even know said you had a good day or you look good…” I thought this quote had broader implications than for just football or sports. What outside noise do we allow to affect our confidence?
Recently, we have experienced some downturn in the stock market. Our office fielded several inquiries from our clients about why their investment accounts were negative for the third quarter. It’s easy to forget that the stock market can go down. I believe most of us know that intellectually, but when we experience negative investment performance, it still makes us question what’s going on.
Market corrections, a stock market decline of 10% or more, are a regular and normal occurrence in the stock market. There have been 27 corrections since the end of World War II (1945) of which 12 were full-blown bear markets (declines of more than 20%). The average decline during these 27 corrections has been 13.3% and has played out over an average of 71 trading days which is just over three months. Simple math shows that if spread out evenly, a correction would start roughly every 31 months. The last full correction took place between April and September of 2011. It’s been approximately 43 months since the beginning of that correction. It would seem likely that we are certainly due for a decline of 10% or greater in the stock market.
The important issue isn’t when the next stock market correction will begin, but rather, how we will react to next correction. There will never be a shortage of market noise that can distract us from the big picture. Will we let negativity rock our confidence in well-established financial plans? At Master’s we believe that having a plan rooted in time-tested, Biblically-based financial principals is the prudent way to weather the next difficult market episode. Let’s not lose confidence in these solid principles, and let’s keep our focus on and ultimate confidence in the One who really holds our future.
* Stock Market statics mentioned in this article were largely obtained from an article titled “A Field Guide to Stock Market Corrections” by Joshua M Brown and posted 8/20/2013 on his blog.