“The higher the VIX, the higher the clicks”–Phil Pearlman. Nowadays you will never get more hits on a blog post than when you write one about crashes. Fear sells; if you can get a once in a lifetime crash call correct you will be immortalized for years regardless if you get everything wrong afterward. Remember, Elaine Garzarelli, Marc Faber, Nouriel Roubini, Meridith Whitney, Hussman, Peter Schiff, etc.
Here are a few things to remember;
- The market goes up and down not up or down.
- Corrections and outright bear markets are painful.
- Big money is made after corrections, the bigger the better, live to fight another day but embrace corrections.
- Indices have a tendency to come back, stocks are a different story, most don’t make it. “The Russell 3000 index measures the performance of the largest 3000 U.S. companies, 98% of the investable U.S. equity market. 40% of the stocks had a negative return over their lifetime, 20% of stocks lost nearly all of their value, 10% of stocks recorded huge wins over 500%. 80% of the gains are a function of 20% of the stocks.
- When you look at the charts below you can focus on how scary the sell-offs were, or you can look to the right and focus on what happened afterward-THAT’S WHERE THE BIG MONEY IS MADE.
- The biggest rallies happen during bear markets, be very careful shorting in the hole.
- The first low after a rapid sell-off is usually not the last low.
- A retest of the first low happen often; the retest normally forms a new low along with some positive divergences, i.e., less 52-week lows, etc…
- Every sell-off, 1987, 1990, 1994, 2001, 2007, all felt like the end of the world. The media made it seem that way, today Twitter will make it feel like an apocalypse and the bearish arguments will always make more sense.
- Protect your capital and protect your mental capital. “Stay the course”, “In it for the long-term”, etc., is sound advice when we are in bull markets and for my 4-year old son that has his whole life ahead of him. Cash is a position. TACTICAL OVER PASSIVE.
Below are annotated charts of the SP500 during corrective/bear market periods.