This week, the Aussie market entered what is popularly called a ‘technical correction’ — that is, a fall of 10% or more from a previous high. In so doing, it wiped off all of the gains from the past year.
Exactly who decided that a 10% drop is a correction I have no idea, but it sure can seem pretty scary. You certainly know something’s up when the nightly news bulletin leads with the finance section. Cue the usual images of Wall St traders with heads in hands and lots of screens covered in red.
The media likes to portray these things as unusual, as if something has gone wrong. But when you observe markets over any meaningful timeframe you notice that this is really just par for the course. A 10% correction tends to happen, on average, about once a year.
It has to happen. As Morgan Housel (one of the best investment writers around) recently put it:
The stock market fell because if it only went up there would be no risk and if there’s no risk there’s no return, and if there’s no return people will sell, so the stock market fell. The end.
When it comes to the stock market, volatility is the price of admission. Indeed, it is something all the investing greats embrace.
Take a deep breath. Stay calm. And remember, markets will fall more sharply than they rise, but they will rise more often than they fall.
