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Over the past few weeks we’ve been reading a lot about “the return of volatility.” The S&P 500 certainly has shown a hefty amount of volatility this past month, falling as much as 4.1% in one day (February 8) and a total of 10% over nine days, only to bounce back to approach its prior peak. But this type of volatility isn’t anything new--it actually is normal.
It was the remarkably stable period between early 2016 and early 2018 that didn’t have any 5% corrections that was abnormal. Another sign of this abnormality is the fact that going into this past month, the S&P 500 had not produced a negative monthly total return since October 2016, which tied the record for the longest stretch of consecutive monthly gains (15) that was set way back in 1959.
Sizeable market moves can increase the temptation to sell on downdrafts and buy on upswings; however, we strongly advise against attempting to do that. The chances of getting out at the right time and then back in again before the market rebounds are extremely slim. For example, even if you had been smart enough to bail out of stocks before the S&P 500 fell 37% in 2008, at what point would you have been brave enough to come back into the market?
And how much of the S&P’s almost 270% gain since the beginning of 2009 would you have missed? As baseball legend Yogi Berra once said, “Predictions can be hard, especially about the future.” We always recommend that you put as much of your portfolio into stocks as will still allow you to sleep at night and stick with that allocation regardless of what the market does.
Read more of The Turnaround Letter's latest stock market advice. Our March issue includes details on five value investing opportunities within the gold industry, four timely turnaround stock opportunities poised to benefit from new management and much more.