The Definition
Courtesy of Joshua M Brown
So, it’s official – we’ve had a stock market correction, according to the universally agreed upon definition of a 10% drawdown from the recent high.
From the New York Times, a recent history:
Too soon to know if this correction will turn into a bear market (regarded by most as a 20% drawdown). My director of research Michael Batnick notes that of the fifteen true corrections from record highs since 1928 (prior to this one), ten turned into full-blown bear markets while five did not.
More importantly, stocks have spent 55% of the time since 1928 in a 10% drawdown, so it’s fair to say that we’re in a completely normal environment.
The only thing that’s abnormal is the speed with which this 10% drawdown took place. Here’s my pal Ryan Detrick of LPL:
Perhaps we deserved that speed of decline. The S&P 500 chart was ridiculously extended to the upside.
Here’s Mike’s tweet and chart illustrating this:
And for those who’ve been hurt disproportionately due to excessive risk taking, leverage or poorly constructed portfolios, it serves as a perfect wake-up call that they may need to consult a professional on either their plan, their portfolio or, most likely, both.
Namaste.
Soundtrack:
Links:
- Stocks Plunge as Market Enters ‘Correction’ Territory (New York Times)
- You Think the U.S. Stock Market Correction Is Bad? Asia Is Worse. (MoneyBeat)
- The Drawbacks of Behavioral Finance During a Market Correction (A Wealth Of Common Sense)
- Barry's 5 Rules to Help Avoid Investing Disaster (Bloomberg)
- Amazon launching a package delivery service to rival Fedex, UPS (Wall Street Journal)
- 35 Steps to a Market Bottom (Irrelevant Investor)