“Investors cannot earn high returns without occasionally bearing great loss. If the investor desires safety, then he or she is doomed to receive low returns.” – William Bernstein
Stocks took it on the chin yesterday. The S&P 500 was down around 1.2%. These days are never fun for investors, but it happens.
I looked the daily returns for the S&P 500 going back to 1950:
Losses occured just shy of 47% of all trading days. Most losses are fairly shallow, but 20% of all daily losses are greater than 1%. And 10% of the total daily moves in the stock market are losses of 1% or more.
So 1 out of every 10 days the market falls at least 1%. This is part of the agreement we have with risk assets. Long-term returns in exchange for short-term risks.
You’re doing it wrong if every daily move in the market makes you want to change your allocation to stocks. You have to get used to seeing losses on a regular basis.
I saw quite a few DOW CRASHES 200 POINTS and IS THIS THE START OF A CORRECTION? headlines yesterday.
With stocks near all-time highs you’ll hear even more noise than usual from the media and investors that would like to become famous by calling the top in the market before a crash.
Because bear markets happen every few years, on average, eventually some of these serial forecasters are going to be right.
Predicting that the market is going to go down is like saying Kim Kardashian is going to post a selfie in a bikini on Instagram. It happens more often than people think and when it does everyone on Twitter and in the media goes ballistic looking for the implications (Is it a coincidence that both happened yesterday?).
In the end we will all be better off if we just ignore both of these events.
A Wealth of Common Sense is a blog that focuses on wealth management, investments, financial markets and investor psychology. I manage portfolios for institutions and individuals at Ritholtz Wealth Management LLC. More about me here. For disclosure information please see here.
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