Who Cares if the Market Falls 10%?

The business media and many stock analysts spend an enormous amount of time discussing whether the market is headed for a downturn. However, if you think the market will rebound, as it has in the past, it’s sort of a waste of time to talk about an upcoming correction of 5%, 10% or even 15%.

And almost all of the analysts and business media people discussing the possibility of a market downturn believe the market will always recover. So, why worry about it?

Sure, for market timers it may be a buying opportunity, but for most investors it really doesn’t matter.

If the downturn lasted a year or two, that might be a problem, but these days, downturns only last a few days or a few weeks at most.

If you’re a stock picker, whether the market has a correction shouldn’t matter much. Your stock pick should be able to ride out a small downturn and you should mostly be focused on the best entry and exit price for that particular stock.

Only if you think that a much bigger downturn than 10 – 15% is coming, say 20 – 25%, would that make some difference. But really, if you think it will rebound, as most investors and most people on Wall Street think, who cares?

Only if you think the next downturn will kick off series of downturns and the market will never return to the level it was at before the downturn, would a downturn bother you.

Of course, a big series of downturns is what we call the Financial Cliff. And that is a very big deal. We think that will happen eventually--almost certainly. But it doesn’t look likely now, so smaller downturns should just be ignored.

To be safe, you, or your broker, are best off having a trading system that can act as an early warning system to tell you what problems are likely to become bigger problems. Otherwise, how do you know for sure that the next big downturn isn’t the beginning of the Financial Cliff?

If you are interested in discussing what would be a good trading system for you, call us at 703-787-0139.