Stocks are Down 17% in Seven Days. Should You Be Worried?
The S&P 500 was up over 17% from the October lows seven trading days ago and just like that, those gains are gone. We are now right back to where that rally started.
I've been expecting and preparing for a correction but the speed of this sell-off is very impressive. However, we've seen similar events before. Remember Christmas 2018? Stocks corrected 16% in 15 trading days.
Yes, the coronavirus fear is real and does put a different spin on this sell-off. Not very often do you see entire countries being quarantined. This will no doubt cause a global economic slow down but it's still to early to say how big the impact will be.
Understanding what you own and why you own it, is very important when stocks begin to correct. Not all stocks are created equal and many will not recover at the same rate as the overall market.
Do you remember what your plan was for each individual stock or ETF that you purchased? If you bought a stock for a long term hold did you actually expect it to only go up?
Stocks correct. People forget that. Take a look at Apple. It's had a great run over the last few months but it hasn't been an easy ride for long term shareholders.
What I'm getting at is even the strongest companies don't go straight up. They pullback, consolidate and in some instances experience nasty 25% plus sell-offs.
If you own good companies and are a long term investor, corrections come with the territory and you should expect them along the way.
If you've been trading or positioning in more speculative or growth oriented names, it should be expected that these stocks could experience significant setbacks. Often times these stocks will correct a lot more than the market due to traders/speculators running for the exits.
This also means that these same stocks will more than likely not bounce back as strong as the more established large capitalized names with proven business models.
This is why it's important to understand what you own and why. Make sure you distinguish a long term investment from a speculation or a trade. Don't confuse the two or you may end up selling your investment far too early and hanging on to your losing trade, when you should be cutting your losses.
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