ELI5: Market Corrections

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With doomsday forecasts dominating the headlines, let's take a step back to understand what "market corrections" are so we can better grasp what's going on.

What is a Correction?

A correction is a 10% drop in value. Corrections could be referring to assets like individual stocks and bonds, many times it's used to describe the downfall of a market as represented by an index like the S&P 500.

Many try to time corrections but no one truly knows when they will happen. A correction can happen shockingly quick. The fastest correction happened just this past week, with the S&P 500 declining 10% in 6 days.

How Often Do They Occur?

Corrections happen quite frequently. In the past 20 years, the S&P 500 has experienced 10. With one occurring every 8-12 months.

Corrections are not rare, but you would think they were given how much attention (i.e. panic) they generate every time.

How Long Do They Last

Corrections can last anywhere from a few weeks to a few years. The longest correction in recent history lasted 2.5 years, the aftermath of the dot com bubble. The shortest correction happened in early 2018, lasting only 13 days.

Most corrections tend to be short-lived, lasting 3-4 months.

What Should I Do?

Market corrections are perfectly normal and can even be healthy. They keep stock prices in check whenever valuations get out of control, playing a vital role in bubble prevention.

As long as you're in a well-diversified risk-appropriate portfolio, everything will be fine. Zoom out and think long-term, corrections only represent small blips of your journey.

Ignore the noise and the urge to time the market (the odds are not it your favour). Take a deep breathe, stay the course and enjoy the discounts.

"Widespread fear is your friend as an investor because it serves up bargain purchases."

- Warren Buffet

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ELI5: The Stock Market

Today we get back to basics and answer some of the most common questions about the stock market.

Step One is Knowing

In school, we listen to our teachers. At home, our parents. Throughout our childhood, following instructions is praised and rewarded. When we're young, there's value in this. We don't understand how the world works quite yet, so guidance can be lifesaving. The bias to just accept obviously has drawbacks. Insert old jumping off a bridge adage . This conditioning is especially strong for kids from lower income households. Their parents are more likely in working class jobs involving strict order-taking. Parents of middle-class households tend to be knowledge workers where influence is essential. Studies have shown kids from middle-income households are more willing to negotiable with their teachers. They learn from their parents that things are not set in stone. This leads to better grades and learning outcomes when compared to their lower income counterparts who don't negotiable. In business, if we simply accept things as they are, we would never innovate. In work, w

Herman Ye

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