You Asked, So We’ll Answer
FOQ: What Is a Correction?
Short: A drop of at least 10% from a recent high.
Long: You can’t watch the news without hearing “correction” these days, as we’re right in the middle of one. Why does 10% matter? Well, 10% is an arbitrary number. Why not 9%? Or 11%? We can all agree that being down 9.9% hurts as much as 10%. But the media latched on to this concept and ran with it. Nothing sells advertising like some good, ol’ fashioned panic!
FOQ: How Often Do They Occur?
Short: A lot.
Long: We’ve had 29 corrections over the last 50 years, a bit more than one every two years. And we’ll have plenty more. We don’t know when – they’re completely unpredictable, like anything about the market. And the reasons for them only become clear after the fact.
FOQ: How Long Do They Last?
Short: They’re usually short.
Long: Of those 29 corrections, 70% lasted less than 15 weeks, when a bottom was hit. Some turned into full-fledged bear markets (down more than 20%…again, arbitrary, but oh so lucrative for CNBC). But here’s something reassuring: of the 29 corrections, 100% of them saw a complete recovery, and then some. As did every bear market, for that matter. And who benefitted from the recoveries? Only those who stayed invested and didn’t panic. Please don’t ever forget that.
John & Bill