February 2018 - Substantial Market Correction
Updated: Feb 11, 2018
Whereas we started of January 2018 with a bang, February 2018 will enter history as a month of severe correction throughout the entire stock market.
I know that seeing your wealth evaporate in a matter of days by being exposed to the market leads to stress and panic. I can imagine this feeling is particularly strong if you just entered the market, or if you just started copying me a couple of days ago. The natural reaction after a double-digit loss would be to pull all your money out of the market and secure it elsewhere, or stop copying me.
Now the funny thing about humans is that they usually base their future behaviour on past trends. "Oh, stock markets are going great, so they will do great in the (near) future also. I will invest more". Until they don’t… "Oh, stock markets are plummeting, so they will continue to go downward in the (near) future also. I will take out my money". Until they don’t…That is why markets tend to overreact, both in the positive and negative way, after which the markets correct and stabilise themselves. After long periods of bull markets, heavy corrections occur and the markets lose substantially. However, the subsequent recovery periods are usually strongly performing periods with higher-than average returns.
I’d like you to see this moment as an opportunity, rather than a moment of distress. Yes, markets are down, yes, you have lost the opportunity to sell your assets at a high price. I’d like you to understand that you didn’t lose any money at this point because you didn’t capitalise your assets. You still own the same amount of bits and pieces of companies (stocks) as you did before. It is just that right now, people are not willing to pay as much for them as they were willing to do so before.
Is the correction over? Are we at the lowest point? I don’t know… Market timing is a difficult practice, impossible to do it 100% accurately according to me. All I know for sure is that stocks are approximately 10% cheaper compared to a couple of days ago. That is why I added 10% of my portfolio value in funds to my portfolio and I bought Google, NCR, Trimble, Nuance Communications, Activision, Verisign, Nvidia and FireEye with a +/- 15% Take Profit. FireEye already hit its TP, and three others are in positive already.
If markets recover from this current low, I will have profited from my 10% extra investments. If markets continue to plummet and reach 20% loss, I plan to add 20% of my portfolio value in funds, being confident that there will be more chance of the markets recovery from that point onwards. Am I wrong? Than I plan to do the same when markets hitting the minus 30%… And so on.
Point is, don’t panic… Markets go up and down. Remember that even after this turmoil, I still have a 38% return from the past 12 months and that this is quite much more than most traditional ways of investment are able to offer you. Even if you don’t have the additional funds to add at this point, I would strongly recommend you to remain invested with what you have until eventually markets go up again.