Market Corrections are healthy and very common

Back in April, I wrote an article titled “Is the Market due for a correction?” You can view this article on my blog at www.fogelcapital.com. Now that we are experiencing a market correction I think it’s important to go back and revisit some of the main points. Market corrections of 10 percent or more happen more often than you think. On average a correction takes place about every 18 months and they last on average about 3 to 4 months. This correction really started around the beginning of July so I believe we are in the later stages. They are healthy in the sense that it creates an opportunity for new money to flow into the market. There is and has been a lot of money on the sidelines waiting to get in the market. I know most investors fear that this will be another 2008 financial crisis, but things are a little different now. Banks are well capitalized and the real estate market is still in recovery, although maybe in the later stages. I have said it on multiple occasions recently but this market reminds me of 1997 during the Asian Contagion. During that period the Dow Jones Industrial Average dropped from just over 8000 to below 7000. The Dow just dropped from just over 18000 to below 16000, so on a percentage basis, it’s almost identical. I guess the question to most investors is will we drop further or have we already seen a bottom. I do know one thing; stocks are cheaper than they were a year ago. It’s interesting that stocks are the only things I know of that people are afraid to buy when they go on sale. I also find it interesting that investors fear the month of October because most market downturns usually end in that month. I am not saying wait until October to invest. I am saying that if you do your homework you will find that there are significant bargains to be had if you are sitting on cash. The main point I want to make is not to let your emotions dictate how you invest your money. If your portfolio is built correctly it can withstand a 10 or even 20 percent move to the downside. The question is can you stand it. Investing takes discipline and knowing the risk of each investment you make is crucial. Now is a good time to go through and upgrade your portfolio if you have some underperforming assets. I encourage anyone reading this to visit our website at www.fogelcapital.com and read our blog. The topics covered are informative and it doesn’t cost you a dime to read. As always the opinions expressed in this article are that of the authors. If you would like to discuss this further you can reach us at (772) 223-9686.