If you’re the kind of person who likes to worry, then October has given you plenty of stimulus. After a dip in the popular S&P 500 index for the month, all the gains that we’ve enjoyed this year have been wiped out, putting the index slightly into negative territory.
In times when the markets are dropping, even if they haven’t hit correction territory yet (that would be a 10% drop), the media needs to find a narrative, and you hear all sorts of theories. Corporate earnings have nowhere to go but down. The tariffs are slowing down economic activity. Interest rates are rising.
All of that is true, but none of it has anything to do with why the markets are falling. The only true headline, and one you will never read, is that stocks are falling because some people are losing faith in their investments and selling out to bargain hunters. Sometimes this activity feeds on itself; when people see the market falling, they, too, begin to panic.
The stock markets periodically deliver losses for reasons which are not always obvious even after the fact. Bear markets are a normal part of investing, and this is a good thing, because it allows real investors to periodically buy stocks at discounted prices. Research has shown that there is a gap between the return that most investors get from their stock investments and the actual returns delivered by those stock investments. This is, of course, because they sell this or that fund before it goes up – or sell out and then wait to get back in until the market has gone up past where they sold. Getting the full return of the markets is relatively easy: just hang on during those periodic downturns....