Why I’m Glad The Market Is Volatile Right Now
I started working in financial services full time when I was 23. Since then, I’ve seen plenty of volatility in the market.
For example, there was the time the Nasdaq stock bubble deflated more than 60% from March 2000 to September 2002, the September 11 terrorist attack that closed the U.S. stock markets for a week (when the S&P 500 opened a week later it fell 11.9% in 11 days), and the housing bubble of 2006 that led to the financial crisis of 2008 (when the S&P 500 fell more than 50% in six months).
#-ad_banner-#In the short run, all of those events made investors, including me, nervous. It’s scary to think about the global economy falling apart, accompanied by big losses in stocks and bonds.
However, in the long run, history has proven that corrections are a normal part of a healthy market and are usually short lived.
According to a study from mutual fund company American Funds, from 1900 to December of 2014, a pullback of 10% or more happened about once every year.
Bear markets (more than a 20% decline) are rare, happening only once every 3.5 years.
Take a look at the frequency of corrections and pullbacks in the table below.
When stocks do fall, history also shows they usually don’t take long to recover.
Wealth management firm Wealthfront found that when stocks declined between 10% and 20% from 1945 to 2014, it took an average of just 107 days to regain those losses.
Even after the S&P 500’s worst decline, stocks still recovered.
On Monday, October 19, 1987, the S&P 500 fell 22.6% in one day. This day is commonly referred to as Black Monday. It was a traumatic event for investors.
Today, the largest drop in the history of the stock market barely looks like a speed bump in the long trend higher. Take a look below.
Sell-Offs Have To Be Viewed As Opportunities
I want everyone to keep this in mind this week if the S&P 500 remains volatile: Sell-offs have to be viewed as opportunities.
This current wave of volatility is making investors nervous. I know because I’ve been getting more calls, texts and emails than usual.
I can’t predict where stocks are headed in the short run. But even if they keep falling, history tells me it will create a new opportunity.
In the meantime, here are two other things I want everyone to understand.
1. The media loves getting people whipped up into a frenzy. The EU-UK situation is important. It will have an impact on the market, as we are seeing.
But keep in mind that the media loves getting people whipped up into a frenzy.
The media can’t wait to find the newest reason the world is going to end and how we’re all going to be sucked down a black hole.
Doom and gloom headlines have proven to get 20 times more clicks than regular headlines. The media has a clear financial incentive to promote doom.
Do not believe the hype. The world is resilient. Just like the stock market.
2. This is just the beginning of the EU-UK soap opera. It will last for years. Does anyone remember Greece? The fellow EU member was at the top of the headlines for four or five years as its financial problems threatened the EU. It was a long and drawn out soap opera.
This is similar. The story will go on for years. Don’t spend too much time trying to figure out how it’s going to affect the market.
Stocks will be down one day on bad news and up again the next day on good news. In the long run, the stock market spends a lot more time going up than going down.
These are lessons and experiences I am thinking about this week as I roll out a new trade for my premium options service, Income Multiplier. And the good news: With stocks falling, the VIX has spiked near its 2016 high. That makes this one of the most profitable times of the year to sell options.
That’s why I’m excited about my latest trade. The company has just recorded record revenue, has grown its dividend by 176% in the last five years and it will repurchase more than $3 billion in shares in 2016. If the trade works out according to plan, we’ll generate a 10% return in just 114 days, or 22.1% annualized. And at worst, we’ll get a chance to buy shares at a 12% discount.
To see how this trade works, I invite you to check out Income Multiplier by simply visiting this link.