Наталья Серова

Fall in the markets: preparing for corrections and crises

So, since December 26 in dollars, the Russian market has grown by 11.6%, undergoing minor corrections highlighted in red.

This morning I woke up, opened the terminal, saw that today everything was falling and thought “great, you can buy”, another novice investor, seeing a minus in his portfolio, raised a panic, sold all his assets at a loss and fled the market ... So why is a correction in the markets good for me if everything falls?

Bull versus Bear

A bull market means that the stock market is growing aggressively. The shares are selling at a high price and investors are confident that prices will continue to rise. According to analysts' forecasts, 2021 will be exactly the same, but how it will actually be - we can only observe.

On the other hand, a bear market describes when stock prices fall (usually more than 20% of their recent peak) and investors start to worry that they will lose money. This is exactly what happened in early March 2020.

How often do strong corrections occur?

On average, a real market correction (a fall in value of 10% or more) occurs every two years 2. Smaller falls in value occur more often. The market plunge is simply a reminder that stocks are not a one-way tram ride up the wealth accumulation mountain. From time to time we will encounter bear markets - this is the nature of the game.

Once they start, market corrections can last for days, weeks, or months. However, over time, the market will start an uptrend again and return to profitable levels.

An investor must always be ready for the fact that markets cannot only grow, this is contrary to all the laws of economics. Yes, there will be small corrections, but we are not afraid of them, since in the long term, markets are always growing. Again, I cite as an example my favorite SP 500 index, which has grown by 261.82% over 10 years. Read more about this index in the previous article.