Is Stock Market Correction Normal ?
Since the start of 2018, the stock market has experienced higher levels of volatility than we’ve seen before. The result has been in many headlines or news highlighting the downfall of a strong market and how much the market cap has been wiped out in such a short period of time. It’s left many people wondering if this is normal and healthy, or a sign of worse things to come?
For me, it is normal for the markets to experience a short-term drop in prices, typically followed by a long-term advance. Those are the facts.
The complexity of available financial products is contributing to this unusual volatility. In recent years, the financial services industry innovates by creating new and complex products such as Options/ Future / CFD / DLC that track everything from market volatility to price speculative. These leverage products/derivatives give “investors or gambler “ entirely new ways to “trade or gamble” on the market. I am sure the market will tend to be more volatile due to these “trading “ products and avenue. As such we will need to understand the “market correction “ and volatility to avoid excess trading or end up selling due to panic/emotion.
Two very good articles/advice from The Mootly Fool :
A stock market drop doesn't mean it's time to panic. Here are six things you should be aware of when it comes to stock market corrections.
Worried about the stock market's volatile drop? The Oracle of Omaha's wisdom can guide you through it
From the below chart, you can see that market has experienced or gone through many crises since 1985 ( 33 years ), 9 crisis level of corrections with more than -20% and many less than -20% kind of correction. Investing during a crisis will really make much difference in your overall ROI as compare to your peers or other investors, as mentioned before, I am really “lucky” that I could take advantage and invest more during GFC in 2008/09 that improved my ROI tremendously.
One should not fear a crisis , in fact, should love it and invest more during the crisis. Here I am not talking about 10-20% kind of market correction, you don’t sell all your stocks if market having correction of -10%, of course, you may try to nimble a bit but keep most of you war-chest intact for a major crisis.
Even during the last 2 crisis after GLF (ie European Debt Crisis (2011) & Emerging market and O&G (2015), I deployed some of my war-chest but not all.
For recent market correction of around 10%, I didn’t do much on my portfolio except for some minor adjustment of composition with some in and out on certain sectors or stocks. I am still counting on the dividend I receive quarterly, which is much needed to cater to my monthly expenses. In might be too extreme to go all out or in due to such small correction, unless you are a “traders “ who try to take advantage of “market volatility or swing “.
Nobody really knows what will happen to market from now onward, it may continue to drop by another 10-20 % as market volatility due to trade war which still persists and entangle, but remember that Volatility not equal to Risk.
Last year was a really good year for most investors ( including me ) with a double-digit return, but we must be realistic that: 人无千日好，花无百日红
As of writing, STI’s return was 0.2% since Jan 2018 and I am performing worse than that with -0.4% due to more investment in REITs in my portfolio. REITs will continue to form a major part of my portfolio as I need the “stable and more predictable” income to meet my monthly expenses. My target of adjusting REITs to 50% of my total portfolio almost done and I look forward to accumulating more growth/value stocks in the next crisis.
1St Quarter 2018 will end soon and I am looking forward to the announcement of financial result from companies I vested and of course the expected: Dividend to be collected . Stay tuned for my next update.
## Related Link :
Quote Of The Day:
"Stock market goes up or down, and you can't adjust your portfolio based on the whims of the market, so you have to have a strategy in a position and stay true to that strategy and not pay attention to noise that could surround any particular investment." John Paulson