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This Is Normal, Reacting Isn’t

Friday was painful, huh?  The past few years of steady, positive returns have lulled us to sleep.  It’s jarring for the plane to experience turbulence.

But did we crash and burn?  The higher the market the more irrelevant ‘point movements’ become.  The 1987 Black Monday pullback of ~500 points was a one-day decline of 22%.  TWENTY-TWO PERCENT!!!  This past Friday’s ~500 point drop?…a tad more than 2%.  That’s good enough for the 531st worst day in the history of the DJIA.

Today isn’t shaping up much better.  At the time of this post the DJIA is off another 500 points (2%).

It’s important after days like Friday and today to remember the past few years were the exception – not the norm.  Generally even the best years have had some very bad days, weeks and months.  2017 was a particular exception.

Although it had been almost two years since we saw a day like Friday it was actually the 17th time since Jan 2013 that the S&P 500 fell 2% or more.  Anyone who decided panic selling was the way to go after any of these 17 days missed this:

 

What happened last week is a regular and normal part of investing in equities.  It’s the price to be paid for creating wealth over the long term.  No one knows what Friday means.  Everyone ought to know Friday’s action should not change long-term investment plans one bit.  Not one bit.

On that note here’s what Morgan Housel had to say about Friday’s market action:

“Worst day in the market since the last 2% decline you don’t care about or remember anymore.”

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