So I heard somewhere that it's been over 500 days since the U.S. stock market has experienced a 10% correction, and that they (10% corrections) have occurred, on average, once per year. I heard last week, then repeated on television, that 5% corrections have occurred, on average, 3 times per year. Although yesterday I heard that they (5% corrections) have occurred, on average, 5 times per year (oops!). Perhaps I should do my own study instead of relying on what I hear. I mean me knowing what the overall market has done in the past is essential to the investment recommendations I offer in the now, right? Uh, well, "essential"? Uh, no.
I used to think that the stock market indeed "corrects" 10+% once each year. Why, again, because I heard it somewhere (and, yeah, that seems about right based on my 29 year experience in the investment business). But when I stop and think about it, I think what an absurd statement! The fact that fluctuations in the stock market---the auction where millions of people (for their own purposes) buy and sell thousands of companies---are utterly unpredictable makes a statement that it in fact does some particular thing (as opposed to having averaged some particular thing) once per annum utter nonsense. So no! Dividing the total number of stock market years by the number of say 10% corrections to determine an average is about as useful as knowing that the average chocolate bar has eight insect legs in it (Google it). That little fact (or factoid) in no way means that the Snickers in your cupboard camouflages eight cricket appendages: it may have none at all, it may have come in a case of 50 bars with one containing 400 legs. Yours could be one of the leg-free 49, or it could be the one with the 400 legs, you'll never know (that little extra crunch could be a sliver off a peanut or a you-know-what). Or perhaps going forward no bug leg will ever make it into another chocolate bar. In any event, as long as you don't pay too close attention, as long as you don't drive yourself insane by taking a microscope to every bump in your candy bar in an attempt to avoid the occasional added protein, and accept that over your lifetime, you---and every other candy bar-eater on Earth---will ingest a few insect legs, you'll do just fine. You get the market analogy, right?
I know, you want more on stocks. You're a little nervous, being here at Dow 14,600, and I do understand. But that's like forgetting why you love candy bars and stressing over bug legs. You own stocks for literally hundreds of reasons. You own stocks because you own cars, you buy gas, you own cell phones, you own computers, you wear tennis shoes, you travel, you golf, you surf the web, you eat, you read, you sleep on a bed, you live under a roof, you use soap, you get headaches (then take a pill), you bank, you buy insurance, you go to the movies, you watch TV, you drink coffee, you on and on and on and on, and you want to own some of the companies (in amounts consistent with your objectives and risk tolerance) that you and the rest of us humans will be buying stuff from for the rest of your life. And you understand that your portfolio will ingest, and digest, a few unpredictable bear markets along the way.
What I want to know is what happens to the rest of the bug?