Corrections (defined as a drop from the peak of a market exceeding 5% but less than 20%) are a normal part of investing. For long term investors, they are simply the price we pay to participate.
In this “I can’t wait all minute,” world we live in, where investors can check the price movements of their investments around the clock, corrections can seem unbearably long. According to Fidelity Investments for corrections exceeding 10% the median time from peak to trough is 54 days, with the longest being 252 days.
In the fall of 1998 the market, as measured by the Standards & Poors 500 Index, dipped more than 15% very quickly on the heels of the collapse of Long Term Capital Management, but then recovered the old high five weeks later. Last year the market peaked in April, hit a low on July 2nd, but then see-sawed until August 27th. (See yellow circle below) Once the recovery began in earnest, the April high was eclipsed about 11 weeks later. This year we peaked right at the end of April, with the low (so far) occuring on August 8th. (See green circle)
If we use history as a guide, we can expect more ups and downs until the market begins its recovery. Of course the past will not repeat perfectly, so have patience. Both US and foreign markets are undervalued and are expected to provide good value for the patient investor.
In my previous blog, I mentioned something about an unemotional indicator—I’ll cover that next time; promise!
*The opinions in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.