Stock Market Sell-Off: This is Heartburn, Not A Heart Attack

hey everybody, Mike Desepoli, hope you're all doing well Today is Tuesday February 6 2018 and we're going to talk with you about the recent sell-off in the stock market you know we're of the belief that the market are currently undergoing a normal corrective pattern so we wanted to lay out some context here for you today give you some history around market Corrections so you know what to expect as we move forward so first for the investors out there that may be new at this what is a stock market correction a market correction is characterized by any time that the market pulls back by 10 percent or more from recent all-time highs and that's what we're seeing occur in the marketplace right now we have not reached that 10 percent threshold just yet but that is likely where we will end up now a little history around stock market Corrections is they're actually very normal occurrence during bull market rallies you know the average correction usually occurs one and a half times per year and usually is about as deep as 14 percent from top to bottom so given those numbers you know we haven't seen a correction in quite some time and we're nowhere near 14 percent at this stage in the game now when we look at the psychology of a correction why do they unfold and why do they tend to happen so swiftly to the downside and the psychological aspect of it is there's a lot of panic fear and uncertainty that is involved when a corrective phase occurs in the market and if we know anything about stocks and we know anything about the markets there's two things the market hates and that is fear and uncertainty and when both are prevalent it is not a good combination so what we're seeing now is investors that have been riding high for a long period of time you know when the markets do very well for extended periods of time people get a little bit short-sighted about risk they start to discount what risk and the role it plays in their portfolio and they tend to get a little bit too aggressive in their individual holdings now for investors that have a strategy and have a plan that's probably not the case but now when these corrective patterns unfold then these investors that probably are a little bit allocated more towards risk than they would like to be they start to panic because they don't have a plan and then they start to sell and that selling starts to build up it's like a snowball rolling down a hill and next thing you know you have an avalanche of selling in the market now the media pundits love times and events like this because they drive viewership and ratings all for fear and uncertainty and especially panic so please do not construe what you hear over the television or in the newspapers is financial advice and definitely do not take that into your action plan for the stock market you need to have a long term strategy and you need to keep your eyes on your goals and objectives and do not let the short term noise throw you off course now what happens during a corrective phase in the stock market is it tends to create something that we call action bias that is the feeling that you just have to do something because so many things are going on around you and a lot of times we think that is the worst possible thing you could do during a market correction now if we thought this was the beginning of a new bear market where we throw markets we're going to trend lower for the foreseeable future into the longer term we would absolutely want to take action on our portfolios but for something on a short-term basis like this that we think will run its course and it will present discounts to investors who are maybe still on the sidelines and have missed out on a great part of this rally draw them back into the market and markets will move higher now a little context around these large point drops in the indexes you know one thing you have to keep in mind the more the market Rises the amount of points it takes for a 1% decline goes up with that as well so when the Dow Jones was way back at 10,000 you know many years ago a 500 point drop equated to a 5% decline now in today's current market with the Dow Jones trading up in the 23 24 thousand range a 500-point the climb is not the same percentage loss than it used to be so I get it the big numbers are scary we have to put it in the context of where we're at in the market rally where we're at with market heights and look at it from a point basis as well as a percentage basis we do think this is a normal pattern in the markets what's really been abnormal is the previous 14 months before this where the market just marched higher with no bumps in the road pickups and really low volatility you know people got used to that but that is not a normal market a normal market has volatility it has wide swings and even though we could be in a bull trend in a bull market phase we can still see these corrected patterns pop up now one thing to keep in mind you know why do stocks return for greater returns than a lot of other asset classes and the reason for that is because they also present more risk it's a risk-reward relationship so when your stocks are doing well for you and they're reaping great returns you do have to keep in mind that we will have periods of time like this with a tee they do seem to want to perform but if we think it's a good trade-off in terms of a risk management strategy to have these equities in the portfolio we are seeing a lot of panic on the retail side of doing yourself investors with a lot of Robo advisors sites crashing yesterday as investors were fretted Pat frantically panicking frantically panicking trying to sell off their accounts so obviously if you don't have a strategy and there's a lot of uncertainty and fear and in economic times of hardship people panic but when you look at the economic landscape of where we're at we have wages on the rise we see GDP is growing we see corporate earnings accelerating into record levels and we have a tax cut that hasn't even impacted our economy to the fullest extent yet these are not the ingredients for a new bear market that's why we believe this is just a correction in the markets and we will continue to March higher in the future and the last thing I want you to keep in mind is over the last 20 or 30 years the US government has taken many cracks at the individual side of tax reform but this is truly the first time that we've seen major corporate tax reform and if we know anything about corporations they are nothing but a piece of paper a corporation you cannot cut taxes for a piece of paper but what you do when you cut taxes for corporations is you impact the people and the prices of products and everything else within that organization so even though a lot of people think this is just a giveaway into the corporate America we think it will have a tremendous impact from top to bottom through this country this is not the type of environment that we would want to exit the market we still think the market strong we still think the rally is intact we just think we'll have some more volatility this year as markets return to more normal sea so thanks so much for tuning in to this video if you have any questions please feel free to reach out to us if you know somebody out there that doesn't have a strategy and they're in full panic mode right now feel free to forward them this video we'd love to have a conversation with them and make sure investors are well taken care of thanks so much for tuning in guys we'll see you back next time


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