Its been a long time since we have had a correction in the stock market. I think more than six years have gone by which has made investors spoiled and cocky. Anyone new to the market in that time has no experience with anything much more than the market going down by about 5%. At some point in the future, they are in for a rude awakening. The only thing is, no one knows when that will happen.
It is generally accepted that a correction of 10% is totally normal and it flushes out a lot of the investors who have no business owning the stocks they do. It also takes some of the fluff out of the high flyer stocks that have escalated to prices that defy any rational valuation.
You can go online now and Google lots of articles that warn about the high probability of an imminent correction (like this one and this one). As each month goes by, there are more and more warnings thrown onto the pile by those who are supposedly in the know. But the problem is, absolutely no one knows when it is going to happen. Just like earthquakes on the West Coast, we all know they will happen but when, well, that is a different story.
That leaves any investor who has money available to put to work with a problem: should they wait to buy stocks until that correction comes or should they just keep putting money in the market knowing that at some point it will go down. To wait or not to wait for something that will come but could be weeks, months, or even years away?
Unfortunately there is no answer.
Waiting for a big correction could mean you miss a run up from Dow 18,000 to 20,000. No one wants to miss that and it could happen, despite all the naysayers. After all, I’d say that no one could have predicted that we would have gone this long without any significant downturn in stocks. Absolutely no one saw stocks going up during President Obama’s first 6 years in office and that is what has happened.
So I guess we all scratch our heads and wish we could see into the future. But since we can’t, it is smart to invest carefully, knowing that at some point you will wake up to some ugly red numbers on Wall Street. Don’t be scared, just be prepared.