The Stock Market: Same Song, Different Verse

The constant flood of bad-news from the media really can wear a person down.  As we’ve talked about many times before, each year the market, on average, has 3-4 corrections of 5% and one correction of 10%. We’ve already had a 5% correction in February-March, and it appears we’re in the midst of a 6%+ correction now. I will remind you; this almost mirrors exactly last year’s corrections, which each of us has already forgotten.

Weston Wellington, of DFA, really has a way of putting things in perspective. He searches the headlines of the past / present and reveals how poor the media is at predicting the future.

If someone had told us 12 months ago that world markets would stage dramatic rally; we would predict that trends in employment, housing, and financial distress must all have dramatically improved. Yet, that hasn’t exactly been the case, as the economy continues to linger along. Somehow, despite gloomy financial news that keeps repeating itself, markets marched substantially higher.

The moral of the story? Investors should be skeptical of their ability to predict future events and even more skeptical of their ability to predict how other investors will react to them.

Once again, showing you can’t predict the future, but you can plan for it. You should have a plan in place on how to handle the inevitable market corrections. It’s like “stress” in our lives – you know you’re going to have it; how do you deal with it when it happens…do you have a plan??

 2010 Headlines

1. "Europe Crisis Deepens as Chaos Grips Greece" – Sebastian Moffett and Alkman Granitsas. Wall Street Journal, May 6, 2010
2. "Fearful Investors Are Pulling Out" – Adam Shell. USA Today, May 20, 2010
3. "Housing Prices Remain Weak" – Sara Murray. Wall Street Journal, May 26, 2010
4. "Fear Returns—How to Avoid a Double-Dip Recession" – Cover story. Economist, May 29, 2010
5. "Spill Tops Valdez Disaster—Deep Trouble: There Was 'Nobody in Charge'" – J. Weisman, G. Chazan and S. Power. Wall Street Journal, May 28, 2010
6. "Discouraging Job Growth Batters Stocks" – Don Lee. Los Angeles Times, June 5, 2010
7. "Economic Outlook Darkens" – Jonathan Cheng and Justin Lahart. Wall Street Journal, June 2, 2010
8. "Bond Fund Managers See Signs of a Bubble" – Sam Mamudi. Wall Street Journal, June 8, 2010
9.  "Rapid Declines Rattle Even Optimists" – E.S. Browning. Wall Street Journal, June 14, 2010

2011 Headlines

1. "Greek Woes Fuel Fresh Fears" – Marcus Walker and Hannah Benjamin. Wall Street Journal, May 10, 2011
2. "Fear Wins: Stocks Resume Long Slide" – Adam Shell. USA Today, June 16, 2011
3. "Home Market Takes a Tumble" – Nick Timiraos and Dawn Wotapka. Wall Street Journal, May 9, 2011
4. "The World Economy—Sticky Patch or Meltdown?" – Cover story. Economist, June 18, 2011
5. "Japanese Nuclear Crisis Is Ranked at the Level of Chernobyl" – Mitsuru Obe.Wall Street Journal, April 12, 2011
6. "Jobs Data Stoke US Recovery Fears" – Robin Harding, S. Bond and M. Mackenzie. Financial Times, June 4, 2011
7. "Stocks Plunge Amid Fears That Global Economy is Slowing" – Christina Hauser. New York Times, June 11, 2011
8. "Why Are Investors Still Lining Up for Bonds?" – Jeff Sommer. New York Times, May 29, 2011
9. "Investors Shaken by the Fear Factor" – James Mackintosh. Financial Times, June 18, 2011