I Love Market Corrections - And Most Investors Should, Too

I wanted to write and post this earlier in the day, but I still have a day job that occasionally puts a few responsibilities on my shoulder. My delay has worked out to me favor, though, because despite a slight rebound after the opening bell, the Dow Jones Industrial Average is now down more than 1,050 points in the last day and a half.

In a previous post on my personal blog, I already discussed my feelings on market corrections – as a relatively young investor, they’re awesome! When I see a bear market in front of me, I eat the bear, and come back for seconds if it’s still around.

I am still primarily an aggressive equities investor, so I’ve taken the 3 to 4 percent downturn we’ve seen over the past two days squarely in the face. What have I done? Bought more, of course. Eat the bear.

Other thoughts on the market ‘carnage:’

It’s always worse than it seems

Thanks to social media, the general public is more aware of the crisis-chasing and hyperbole that professional news writers and editors employ to sell copy and get clicks. Corrections are normal, even beneficial for most of us investors, but it’s always a ‘rout’ or ‘carnage’ or some sort of terrible sounding word in the headlines.

This has led many investment and personal finance writers to recommend that non-professional investors ignore the headlines. I disagree. I think we should all grow up about what we’re seeing in the media, stop taking news about our social groups so personally, and be as open to the bad news machine that is business journalism as we can. As fantastic personal financeblogger Ms. ZiYou points out, there are too many important things happening and too much at stake to ignore the news.

Stop looking at the points/dollars, start looking at the percentages

When I first became aware of stock markets (sitting in my grandfather’s living room as he watched the business news on PBS), it was right around the time of Black Monday – October 19, 1987 – when the Dow Jones Industrial Average fell a whopping 502 points – 22.6 percent. On Wednesday, the Dow Jones dropped 832 points, more than in 1987, but in reality only shed less than 3.2 percent of its value, less than one-seventh of the proportion of the 1987 crash. People who have been watching market news for 30 years might see an 832-point decline and get the wrong idea.

Stop looking at the Dow Jones Industrial Average

It’s just 30 stocks out of a universe of thousands and it’s a narrow segment of the U.S. economy. Broader indices like the S&P 500 often diverge widely from the DJIA because of the Dow’s concentration in blue chip stocks – though on Wednesday, the S&P 500 wasn’t painting a very pretty picture anyway. Those of us who believe in diversification would probably do better to follow a global index like MSCI’s All-Country World Index anyway, as the DJIA and the S&P 500 do not really represent international stocks.

Don’t sell.

I left it at two words because selling when the price of an investment is lower than it was when you bought it is literally the worst thing you can do as an investor. Some people have no choice- retirees making required minimum distributions from a 401(k) or traditional IRA, for example. If you have a choice, don’t sell.