11/16/18 AU

3 Things to Do During a Correction

For the past month or so, there have been a lot of more down days than up ones in the stock market. Does the current market volatility have you down? Try running a wealth management business that doesn’t charge anything when accounts lose value!

You may have read my 2015 Accountable Update when I referenced Vanguard founder, John Bogle, in a July 2014 AAII Journal article. Bogle made a case that an advisors job is to keep our clients from “doing anything” that may ultimately reduce their chances of being successful investors.

While letting our emotions get the best of us during times of volatility can lead to poor decision making and timing, it may be over simplistic to say we shouldn’t do “anything” in reaction to lower prices in the market. Whether the bulls are running or the bears are roaring, there is always something we CAN be doing to increase the chances that we will be successful investors. This week’s update will focus on three things you can do right now to take advantage of the recent market turmoil.

Market Testing Your Patience? Flip a Coin.

A while back, I posted a video from DFA’s Jim Davis which asked the question, “Can You Predict a Good Time to Buy and Sell Stocks?” In the video, Jim summarizes research he has conducted which suggests that not only can you not time the market, but that there are negative consequences to trying.

If you visit the Accountable Update regularly, you probably already know that. Jim uses an illustration in the video where he shows the probability of flipping ten consecutive heads when tossing a coin. The odds are .001%, or 1 out of 1000.

According to the ICI Factbook, there were about 5000 equity mutual funds at the end of 2016. So remember that at the top of a list of the best performing mutual funds, while their may be some good choices, there are also 5 that flipped 10 heads in a row on the way to their headline grabbing out-performance.

The way the investment marketing and sales business works, those 5 funds are some of the ones you are most likely to see advertised, referenced in news articles, or cherry picked by brokers to convince you to buy.