Are We Due For a Market Correction?

In a recent Wall Street Journal article Jason Zweig wrote, “As of this Friday (6/13/14) the S&P 500 has gone 980 days without a 10% decline the fifth-longest such stretch on record.” His statement implies that a 10% correction may be right around the corner. I have no argument with that. But I would also add that a 10% correction is always right around the corner. In fact from 1900 to 2010 according to the Capital Research and Management Company 10% corrections have occurred on average once per year. And we all know how fast a year goes by.

I’ll never forget what famed mutual fund manager Peter Lynch said when the topic turned to market timing and trying to predict and avoid short-term market corrections. He said, “far more money has been lost by investors trying to anticipate corrections than has been lost in all corrections combined.” I believe he is correct.

Should You Be Concerned?

No. Make no mistake about it a 10% correction is coming. In fact many, many more 10% corrections are coming in our investment lifetimes. Because of this fact, it is best to simply accept this reality and decide before hand not to sell any of your stock holdings during such a correction.

Listening to media pundits constantly espousing short-term forecasts and predictions causes investors to be more emotional about their investment decisions that they otherwise might be. This rarely leads to sound investment decisions.

Warren Buffet said it best in his 1992 Berkshire Hathaway Letter to Shareholders, “We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

In summary, be prepared to stick with your portfolio allocation strategy regardless of what corrections or forecasts may come your way.