Is the Sky Falling?
How do you stay calm when all the financial news tells you to run for cover? Get out of the market! Sell everything!
Let’s take a look at the relative drop in the stock market indexes. We have been on a major upswing for over 5 years. We call this a bull market, not unlike the speed and determination of a charging bull; the opposite of that is what we call a bear market, akin to a big lumbering bear crawling into his cave for hibernation.
The talking heads on TV and in the financial press would have you think it is time to find your cave and crawl in it. Not so fast.
The stock market advances over the last few years have allowed all of us to regain what was lost in the Great Recession, and then some. Most of us have enjoyed double digit increases in our holdings for a good long time.
What we are experiencing now is what we call a “correction.” It is a time when we put the brakes on the bull, to slow down and take a hard look at how we have come up with a market value for the stocks we have bought. All of us would agree they are “overvalued”, meaning there is room for them to drop in price back to a level which is more in line with the true value of stock. This is a common occurrence in the stock market and one that kind of helps to clear out the excesses and regroup.
How deep this correction will be is determined mostly by the investor’s perception of the true value independent of what the statistics tell us. So it can be a free-fall until it settles in to a more relevant price. This often means a drop of anywhere from 10% to 20%.
And it will be a very volatile time. In the course of a day, the prices can swing ridiculously. And so you need to fasten your seatbelt. Sit tight and ride it out. Don’t panic and sell. Those who did in 2007, and did not know when to get back in, lost a considerable amount of money which they never recovered.
If you need a sympathetic ear and someone to hold your hand, call us. We’ve been there. And we’re still here.