Some investors are sure we’re heading for a crash because we’ve had such an uninterrupted rise in stocks but these things can last much longer than most people realize. While a crash is never out of the realm of possibilities, just because stocks are up doesn’t mean they have to immediately crash. Eventually they will be right. It’s the timing that gets you on these type of calls.
The above introductory comments are edited excerpts from an article* by Ben Carlson (awealthofcommonsense.com) entitled Stock Corrections After Long Winning Streaks.
The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Carlson goes on to say in further edited excerpts:
“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” – John Bogle
Ryan Detrick** shared an interesting chart on his blog this week:
He showed that going back to 1950 there have only been four bull market streaks that lasted longer than the current one without the S&P 500 experiencing a 10% correction. Many are saying we are overdue for a correction but the market doesn’t always cooperate with cliches. These things can last much longer than most people realize.
Some investors are sure we’re heading for a crash because we’ve had such an uninterrupted rise in stocks. While a crash is never out of the realm of possibilities, just because stocks are up doesn’t mean they have to immediately crash.
I shared Ryan’s chart on Twitter and was asked how large the subsequent losses were once the market did finally pullback following these rallies. Here’s what I found:
There were a couple of crashes after these lengthy rallies, but the majority of these were run-of-the-mill corrections that you should plan on experiencing every few years in the stock market.
It can be difficult to remember this fact after it seems like the market only goes up in the midst of a strong bull market. Periodic losses help weed out the real long-term investors from the bull market groupies. It’s an unfortunate byproduct of the zero sum nature of investing.
Plenty of pundits have been calling for a pullback for a while now. Eventually they will be right. It’s the timing that gets you on these type of calls.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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