Investing Strategy Archives

During and after a 10 percent stock market correction, it is natural to ask whether the correction will deepen or not. We are wired for fight or flight and about twice as sensitive to losses as gains. Those more prone to act on instinct are vulnerable to selling stocks. This can result in missed gains during the ensuing years.

Reviewing past corrections, and the gains that follow, can help short-circuit those instincts.

January’s 5.6% gain makes the rest of the year looks bright according to the January indicator. 

The logic of the January indicator, according to aficionados, is as follows: 

January Indicator

And the payoff for the rest of the year appears rich:

January Indicator

 

But can high odds of a rich payoff result from such a simple forecasting method?

Yes, according to a Wall Street technician who was quoted recently in Barron’s, … the historical ‘facts and figures’ are what they are. The data is the data.

Financial Crisis 10 Years after: Lessons to Remember

Early October 2007 marks the 10-year anniversary of the S&P 500 reaching a high point. It then lost more than half its value during the global financial crisis. In the coming weeks, the financial news media is likely to examine how today’s environment compares to the period leading up to the 2008 crisis. It is difficult to draw useful conclusions based on observations and opinions: market forecasters focusing on the short-term will “fill your ear but will never consistently and systematically fill your wallet.”

Financial markets have a habit of behaving unpredictably in the short run. There are, however, important lessons to take away:

The emotions of market timing

Today, stock prices are fairly high while growth is widely expected to be slow. Should equity owners sell? I did, prior to the crash of 2008, and I now regret my decision every time the market hits a new high. I’m also afraid to get back in. It’s difficult to time the market, even if behavioral finance teaches us that the price is not always right.– Laurence B. Siegel, The Inventor of Behavioral Finance Looks Back (A book review of Richard Thaler’s Misbehaving: The Making of Behavioural Economics).

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