The market is down, and Best Thing to do is not to panic

What goes up must come down, and what goes up must be borne by the bull. The conventional wisdom is that a bit of market frenzy is unavoidable, cyclical and should provide investors with potential buying opportunities.

Sadly this decline does not seem to be the devil we know. Markets are contending with inflation rates at 40-year highs, Russia’s invasion of Ukraine, supply chain woes and food shortages, rising interest rates, predictions of a widespread recession and the former Fed leader openly questioning the actions of the current regime.

Even the investors themselves are different. Inspirational measures in the Covid era, rising unemployment rate and research on trading platforms for the younger generation have brought a wide variety of new traders to the market.

About 20 million people have started investing in the last two years. According to a 2021 Schwab survey, 15% of investors in the US stock market said they would invest in 2020 for the first time.

“What we are seeing is the elimination of liquid investors. They are buying upfront and asking questions about stock memes, SPACs and NFTs. There are a lot of things I call random buying. And now we are seeing random buying and selling,” he said.

In a recent blog post, Joshua Brown, co-founder and CEO of Ritholtz Wealth Management, stated that most investors are not prepared for this trading environment. “This is one of the most dangerous environments I have ever seen, and I survived the dot-com crisis, 9/11, Enron and Tyco, Worldcom and Lehman,” many other crises.

As Charlie Munger of Berkshire Hathaway said at a recent shareholder meeting, the stock market has become “almost speculative frenzy.” “People who know nothing about stocks get advice from less knowledgeable stockbrokers,” he added.

However, as the market moves into bear territory (the major indexes have fallen more than 20% from recent highs), some technical analysts believe that there is not much of a source of concern.

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According to data from the S&P Dow Jones Index, 14 bull markets since 1932 have returned an average of 175%, and 14 bear markets since 1929 have lost an average of 39%. Drops are also much shorter than bull markets: Since 1932, bear markets have occurred on average every 56 months, or about every four and a half years, according to S&P.

However, they last an average of about a year and are much shorter than the equivalent Bull Run. Avoiding a recession could create a big backlash, said Liz Young, SoFi’s chief investment strategist. Stock prices have risen in the weeks following declines since the 1970s, when the S&P 500 was down more than 10% without a recession.

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Today, the market is trading like pricing in a recession, so if the Fed hits a soft landing, the returns could be significant. When entering the investing world, investors are generally very confident in their capabilities and the risks they face in the future. But the main concern is to keep track of your daily cash flow.

Big investors may be able to overcome losses and make big profits when the market recovers five years later, but small investors can do the same. Therefore, individual investors need to have cash in their savings funds that can be withdrawn easily and hold securities. Because we don’t know which way and how long the market will rage.

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