“I love a good correction. It weeds out the weaker investors” A former coworker of mine used to say that when markets were volatile. It’s a great line, and I’ve used it more than twice. It is true statement. Average investors drastically underperform markets, and many of those average/weaker investors underperform because they scared off by volatility.

Since we aren’t average investors, we embrace volatility. We as astute investors see volatility as evidence that stocks will continue to perform much as they have the last ~100 years, i.e. be a superior long-term asset class combining the best combination of ROI (return on investment) and liquidity, while at the same time being wildly volatile over short-term periods.

Looking at our above and below charts we can see that stocks as judged by the Vanguard Total World Stock ETF (ticker: VT) hit correction territory on 2/9/2018, -10.53% from previous highs.

When there is a sharp, sudden, seemingly out of nowhere pullback in the markets investors should ask themselves one big question.

What is fundamentally different about the market environment looking forward than before the pullback began?

If the answer to the above question is nothing, then it is very likely that this is a correction and not the early stages of a bear market.

Market corrections historically have occurred almost every twelve months. They are normal, they are volatile, and they are impossible to forecast on the front end. However, they are recognizable in the moment.

When faced with downward market volatility i.e. a correction, the best course of action is to wait, hold, and/or put sidelined cash to work.

– Wyatt Swartz

– 2/15/2018