Remember the Big Picture...

All seemed good when the S&P 500 reached an all-time high on September 20. But by October 29, we were 9.9% lower, with a lot of up and down in between. Gulp? Yikes?

If the market has been unnerving you, we understand. For one thing, before October, we enjoyed some pretty smooth sailing, and when things keep going in a certain way, we get used to it. That’s human nature. For another thing, the media switched the narrative on us pretty quickly. Not too long ago, we were reading about the longest bull market in history. Then the focus suddenly switched to all the things going awry in the world – trade tariffs, rising interest rates, China, emerging market woes, and potentially higher inflation among them.

But some perspective is in order here.

The first thing is to remember that while a 10% market drop doesn’t feel good, it is not uncommon. According to John Buckingham of asset manager AFAM and The Prudent Speculator newsletter, stock market corrections of 10% happen on average every 0.9 years, while bear market declines of 20% occur on average every 3.6 years. That means that stock investors should expect declines at some point. They’re inevitable.

On the positive side, for those who hold on, markets also can recover quickly. It doesn’t always happen, but it often does. Market strategist Ed Yardeni looked at the 29 U.S. stock market corrections that have taken place since 1968 (declines of 10% or more) and found that only six of them lasted more than a year. On the other hand, 21 of them lasted fewer than 105 days – a matter of months.

And think about how the longest bull market in history that we just mentioned actually played out. Starting in March 2009, it wasn’t straight up all the way with only feel-good moments. Just earlier this year, from late January through early February, the S&P 500 dropped 10%. The Dow fell 12% in two weeks. People were calling it “market insanity” and a “real roller coaster.” The New York Times wrote an article called “Stock Markets are Scary” in March. One trader in that article said, “We are seeing extreme volatility here.”

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But do you even remember any of this? Many people won’t. That’s human nature too. And we’re not even mentioning the Flash Crash, Grexit, European monetary crisis, Federal budget sequestration, Taper Tantrum, Brexit, or any of the other things we saw the past decade. We got through those things too. Each one of those correction blips in Yardeni’s chart shown on this page surely felt awful. But long-term investors who stayed the course did just fine.

This is not a plea for blind optimism. We are not saying that everything is fine or that things won’t get worse – because things could get worse. What we are saying is that we’ve been through a lot of stuff, and it’s turned out that the best way to stack the odds in your favor is to look beyond the short-term hurt and hold on for the long-term.

So, if you’ve recently realized you need more cash than you expected over the next few years, by all means sell your stocks to raise that cash. Or if you’ve realized that a 10% market decline is too much for you to handle, then reconsider whether you should be invested in stocks at all. But if neither of those apply to you, stay the course.

And remember what Warren Buffett wrote when he stepped up to buy U.S. stocks in 2008 and the world looked a lot worse than it does now. He acknowledged that “The financial world is a mess . . . business activity will falter and headlines will continue to be scary.” But he also wrote: “I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month – or a year from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”