October Proves a Fright

Not unusually for an October, the market is giving investors fits. Talk of recession and bear markets is burgeoning. However, market corrections within calendar years are completely normal. We’ve forgotten that these past few years, as stocks have been remarkably stable. Here are some stats:

  • In the last 40 years, declines of -5% to -30% have happened in 32 years – by far the majority of the time
  • Since WW II, the average number of years between bad bear markets is about 4.8
  • “Corrections” of 10% or more come around every 3 years
  • Smaller declines of 5%- 10% arrive virtually every calendar year
  • Recovery time from declines of 10%-20% has been as short as a month and as long as 10 months.

Corrections offer the opportunity to engage in tax loss selling (important this year since much of the year was spent at higher prices), improve a portfolio from marginal names to higher quality issues, even increase income flows.