September Strategy Notes

“The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffett

Aloni Goh Wealth Strategy Notes: 

The much anticipated correction has started and so far it has been mild and orderly. There were a few days of heightened volatility in September and we expect more in October. We are not very concerned about this pullback in the markets as our view is still bullish over the long term. We have very nice returns so far this year and we can afford to have a little pause in the broader uptrend within our portfolios.

Market corrections are a healthy process which is sometimes much needed for the long-term uptrend to continue. We anticipate that this correction will eventually become a setup for a push towards new highs toward the end of the year.

Extra Reading: 

By definition, a stock market correction is a decline of 10% or more in the price of a security from its recent high. It can happen to just about any financial instrument, from individual assets such as a stock or a bond, or a basket of assets such as an index. The correction is usually relatively brief, and the average period lasts anywhere between 3-4 months, but they are usually also followed by rebounds.

Stock market corrections are not uncommon, as per a report released by Charles Schwab in 2020:

“To illustrate the volatile nature of financial markets, we took a look at intra-year stock market declines over the 20-year period from 2000–2019… a decline of at least 10% occurred in 11 out of 20 years, or 55% of the time, with an average pullback of 15%… Despite these pullbacks, however, stocks rose in most years, with positive returns in all but five years and an average gain of approximately 6%.”

And sticking with your investments tends to pay off if you hold through market corrections. Market timing can be “destructive exercise,” says Ben Carlson, an author of financial self-help books and the Director of Institutional Asset Management at Ritholtz Wealth Management.

“While double-digit corrections occur quite frequently, bear markets are more infrequent… These are the biggest gains on the S&P 500 that occurred between double-digit corrections:

1990-1997: +302%
1984-1987: +147%
2003-2007: +112%
2011-2015: +109%

This is why market timing can be such a destructive exercise. There can be a massive opportunity cost if you’re wrong… But don’t underestimate the market’s ability to continue rising.”