Losing money is never fun but it is a normal part of the investing process.
Stocks go up most of the time but sometimes they go down.
so it goes.
Putting the losing money part of the equation aside, I’ve fallen in love with recessions.
Here are 10 things I love about market corrections:
1. Technical Analyst. I have subscribed to technical analyst newsletters at previous jobs. These are usually from investors who came in the 1990s and have checklists for the bottom of the market.
Look, we’re not going to see a bottom in this market until all 12 of my proprietary technical indicators are hit. We only hit 9 out of 12 so we’re not there yet.
It bothers me when investors assume that the markets are governed by a set of laws like physics.1
If only investing were that easy.
2. Strategist. Every time a stock drops you’re bound to get a note from a strategist at one of Wall Street’s big firms that goes something like this:
We see an additional 5-10% drop in the stock market, but we remain constructive on the market over the long term, so we think this represents a good buying opportunity. We remain cautiously optimistic that a downside movement is underway and further weakness will result in buying.
I still don’t know what it means to be “creative” on the market. And how come everyone is always cautiously optimistic but no one says they are casually pessimistic (besides Zero Hedge)?
3. The end of the people of the world. Here’s PermaBear predicting a crash every time the stocks go down:
Every time the stock goes down a bit, these people (and it’s always people), predict that this is the beginning of the coming apocalypse.
Listen, I know the stock market can and will crash. But every time a stock drops it doesn’t mean the world is ending. Sometimes stocks just need a reprieve.
4. Random statistics. I love the random stats that tend to fly around during the selloff:
did you know [insert random stat about the stock market] Happened only in 1929, 1987, 1999 and 2008?
did you realize [insert even crazier stat] Hasn’t happened since down in 1932?!
9 times the stock market fell on the third Tuesday of the month?
Today was a 97% reverse RSI thruster reading. It has reported below on 9 out of 10 corrections.
who am I kidding? I am totally one of these people.
5. Photographs of weary traders on the floor of the stock exchange. every time:
Do the stock traders on the floor of the exchange still do anything? Are these people actors?
6. Pictures of the rollercoaster on every financial media story about the stock market. This is a take-up of any time the stock fluctuates:
I mean come on. Looks like a roller coaster stock chart!
They have no choice but to use these pictures.
7. Human Behavior. You don’t need to be a neuroscientist to realize that when they are making money, people act differently than they do when they are losing money.
I don’t know the exact parts of the brain or the chemicals involved, but seeing your life savings fading before your eyes can lead some people to make emotionally charged decisions.
Some people panic when stocks fall and do a lot.
Others freeze and do nothing.
Few investors are able to make clear decisions during a route.
It’s fascinating to watch the reaction of investors during the correction.
8. Contents. It’s a selfish one but I always get more writing inspiration during falling markets. Growing markets are boring. Everyone thinks they are a genius.
It is falling markets that force investors to look at themselves in the mirror and question their strategy. That gives people like me more things to talk about and write about.
More people want to consume financial stuff when things are going bad.
My readership always skyrockets during market panic.
9. Text messages from my friends. I’m an investment friend, but when things are going well, I rarely hear anything about the markets from my old high school and college friends.
I get a lot of text from people during reform that goes something like this:
It’s almost impossible to read emotions these days but I find that my friends like to act as a good contrast indicator.
10. Low price. The S&P 500 is only 10% or more up from the highs but the small cap is down 20%. The Nasdaq 100 is down 15% or so. Throw a dart at a list of individual stocks and you’ll probably get something like 40% or worse.
If you have new savings to work with, you are buying at lower prices and get a higher dividend each time the shares fall further. If you hold cash or bonds in your portfolio, you can rebalance those more stable assets into stocks.
Fixes aren’t all bad, are they?
Michael and I discussed everything we love about market corrections on this week’s Animal Spirits video:
Subscribe to Compound so you never miss an episode.
why i love writing about the markets
Now here’s what I’ve been reading lately:
1I know it’s not all technicians. Most of them use technical analysis to step into context, not predicting what is going to happen next. Still, I like people with checklists.