Ten Smart Things Said About Market Corrections

  • Posted by on August 23rd, 2015 at 10:11 pm

Corrections of at least 8% in the major indexes happen at least once a year almost every year. Here are some of the wisest sayings about market corrections that I recall. You could add your own in the comment section below.

1. Market corrections make people a lot of money. They just don’t know it at the time.

2. Corrections come a lot slower than anyone expects, but once they happen they escalate faster than most could imagine.

3. Corrections are healthy only when they happen to other people’s stocks.

4. All corrections feel the same. In the beginning, people don’t believe them, then as prices continue lower and weakness spreads to more sectors, fear escalates and it leads to forced liquidation. Forced liquidation means selling, because you have to, not because you want to. Smart investors dream to be on the other side of forced liquidation.

5. At the lowest point of a correction, the fear of losing is substantially higher than the fear of missing out.

6. During corrections, correlations often go to 1.00, which means that stocks move together up and down disregarding of individual merits. If a stock manages to hold its ground and consolidates through time or even make an attempt to make new high, it is likely being accumulated by institutions. Because of the nature of their size, many institutions prefer to buy on pullbacks and during market corrections. Selloffs provide liquidity that masks their accumulation. Once the pressure from the general market is removed, those stocks tend to outperform.

7. “You don’t need analysts in a bull market, and you don’t want them in a bear market.” – G. Loeb

8. “The market is better at predicting the news than the news is at predicting the market.” – G. Loeb

9. Bottoms are made by heavy buying, not heavy selling. Stocks not going down on what appears to be bad news is a positive sign.

10. “It is not entirely clear what causes deep market corrections, but without them many of the best performing long-term investors would have never achieved their spectacular returns.” – Peter Lynch



The Latest

  • About Predictions and Markets
    Posted by on August 14th, 2015 at 8:19 pm

    Two things happen when enough people react to a prediction: 1) the prediction comes true faster than it otherwise would under normal circumstances. 2) the […]

  • The Twitter Dilemma
    Posted by on August 6th, 2015 at 11:58 am

    Many people are emotionally invested in Twitter and don’t comprehend the reason behind its poor track record as a publicly traded stock.   Twitter is […]

  • Quick Look At Market Breadth
    Posted by on July 25th, 2015 at 10:37 am

    In the examples below, I am using S&P500 data as a proxy for the market. First a short-term perspective: About 37 % of the SPX […]

  • About Over-trading and Under-trading
    Posted by on July 7th, 2015 at 10:17 am

    When volatility picks up, we should become less active and move slower. Hedge fund manager Frank Teixeira has good anecdote on the subject (ht midnight […]

  • My Best Tweets for June
    Posted by on July 1st, 2015 at 10:51 pm

    These are some of my tweets that received the most engagement in June. I filtered them for time sensitivity; hence there are mostly links and […]

  • How Private Markets Are Impacting Public Markets
    Posted by on June 30th, 2015 at 12:40 am

    I believe that active management has a place in everyone’s portfolio. With that said many people might do reasonably well over time if each month they simply dollar cost […]

  • Carl Icahn’s Favorite Setup
    Posted by on June 24th, 2015 at 9:17 pm

    Frank Zorrilla has an interesting piece on Carl Icahn’s position trade in Netflix: Carl Ichan showed the world how he made over $2.1 billion dollars […]

  • Using Overbought Signals
    Posted by on June 24th, 2015 at 9:45 am

    Many traders use RSI to measure overbought and oversold conditions. The textbook says that a reading above 70 is typically considered overbought, a reading below […]

  • About Booms, Bubbles and Busts
    Posted by on June 23rd, 2015 at 9:16 am

    Noah Smith has an interesting piece on bubbles and busts: For the past half-century, the academic macro story has gone something like this: There is […]