Is This News or Is It Normal?
Extra…Extra…read all about it! The stock market’s in turmoil (again).
After its 12% sprint until it peaked on April 2nd, the S&P 500 has retreated 5% or so as I write this.
And, you know what’s coming next. We’ve seen it before. Things were just too good. The bubble’s now going to burst and we’re in for a major market freefall!
Okay, hold the presses for a minute.
What do you think?
Is this news?
Or, is this just normal market behavior?
For the news organization who makes their money by selling advertising space, not by providing financial advice, this qualifies as news, and a good piece of it at that!
If markets simply plodded along each day without much movement, news organizations would be in chaos. Things simply wouldn’t be exciting enough to report and prognosticate on.
This wonderful “news-making” gizmo called the stock market is one of the most profitable tools in their toolbox.
Every day, it goes up or it goes down which qualifies as “news, i.e. something “new” to report that will capture our audience’s attention and, hopefully, keep them tuned in for more each and every day.
News…or Just Normal?
As a rational, long term owner of shares of the great companies of the world, this does not, and cannot qualify as news.
Because the stock market retreating 5% is nothing new. And, certainly nothing worthy of any consideration in terms of altering your investment plans. Just as market prices shooting up 12% in the first quarter of 2012 didn’t alter your plans.
If you’re not already aware of this, here’s a terrific statistic to plant in your memory during cooling off periods like this: the average peak to trough “intra-year” drop in the price of the S&P 500 Market Index is 14%.
Let me repeat and clarify that for a moment because it’s a very, very important fact:
In any given year, the average percentage drop that we’ve experienced at some point during that year is 14%. In other words, if you take a look at the high and low points of each year, you’ll see an average price drop of 14%.
What we can take away from that is that it’s completely “normal” for the stock market to have cooling off periods during any given year.
It shouldn’t necessarily give you the “warm and fuzzies” and lead you to celebrate, but it also doesn’t qualify as a phenomenon worthy of panic.
Unfortunately, this is not how the overwhelming majority of retirees think and behave. They spend their lives in constant reaction to everything which leads them to make the same costly mistakes over and over again.
Feel proud of the fact that you’re not one of them.