When the Sky is Falling
“The Sky is falling” is an idiom phrase defined as “a groundless or absurd conviction that some catastrophic consequence is imminent or underway”. As it relates to the markets, I’ve heard this phrase time and again over my 18 year career whenever we’ve seen sharp market declines. As an investor myself, steep declines in the markets are never “fun”. With experience, I’ve gained perspective and realize that market corrections are not only normal, they are healthy. With this said, declines in the market can create angst and anxiety for anyone participating in the markets at any level. I empathize with anyone who is having a difficult time with the current market declines. Just as storms come and go, the same has been with the markets over time. There is always “something” that drives markets into a correction. That “something” eventually fades and things continue to trend higher over time. By definition, a correction is a decline of 10% or more. Since 1946, there have been declines of 10%-20%, 29 times (Every 2.5 years on average).
In my career, I can recall watching the stock market decline 57% peak to trough from 2007-2009. There were news headlines during that time (financial crisis) questioning whether or not there would be cash at ATM’s. Those were scary, difficult times. But, the market recovered and started making new highs 4 years later. More 10% corrections in 2010 and 2011. 14% correction from 2015-2016. At the end of 2018, we experienced a 20% decline in the markets. More recently, in 2020 we saw covid market meltdown produce a 34% decline in the markets in 22 trading days. The market would recover just 4 months later back to previous high. Every “correction” resulted in stocks making new highs at a later date. Here are a few takeaways:
1). It’s hard to predict how deep (amount of decline) any correction can go.
2). You’ve only lost money if you actually sell and experience a true loss.
3). It’s not a good strategy to panic and sell during market corrections. Panic is an emotion that is real, just like any other facet of life. Use the same tools you would in any stressful situation:
*Breathe, pray, be still.
*Engage in physical activities. Go for a walk, run or do something active.
*Be compassionate and gracious to yourself. Talk with others about how they are doing.
*Talk with me, your Financial Advisor. Your coach, fiduciary and advocate.
As always, it’s important to be diversified and know what type of risk you can handle. While there are real drivers and reasons why the market is in decline, this too shall pass. Just remember to grab your raincoat and allow the storm to pass. Sunny days are ahead!
I look forward to continuing to guide clients through 2022 and beyond. If you have a friend or family member that you think would benefit from working with me, please don’t hesitate to make the introduction. Thank you for your trust and business.
