Yes, You Should Worry About Market Corrections

Can we stop this nonsense? Please.

One of the biggest reasons why investors consistently underperform over the long-term is primarily due to the extremely flawed advice promoted by Wall Street, because they have a product or service to sell you, and the media, because they don’t know better.

The latest bit of advice that you should immediately hit the “delete” key on is from Simon Moore via Forbes. The article, while it certainly fits the “buy and hold” narrative, is rife with flawed assumptions and analysis. To wit:

“You shouldn’t worry about market corrections. Not because they won’t come — they will. There is just no way of knowing when. Consider the data. It turns out that since corrections can’t be predicted, the best strategy is to remain invested for the long haul.

Yes, as I will explain in just a moment, you should definitely worry about corrections as the destruction of capital is far more important than chasing returns.

However, the point of saying “corrections can’t be predicted” is inherently flawed. Yes, you definitely can not pinpoint the exact date and time of corrections, but THEY CAN be avoided.

There is a simple reason why every great investor has a simple rule that varies in form: “buy low, sell high.” Purchasing an investment is only ONE-HALF of the investment process, without the “sell” no money is ever actually made. Furthermore, it is the “sell” process that ultimately minimizes the effect of the correction and, most importantly, if you don’t “sell high,” you can’t “buy low.”

However, there are some basic premises around understanding the “when” corrections are most likely to present themselves. As shown in the chart below, a simple analysis of moving-average crossovers on a longer-term time frame can help investors avoid corrective processes in the market.


Did it work every time?

Of course, not. No investment discipline works 100% of the time. But that is not the point of investing to begin with. Missing a majority of the corrective processes, over the long-term, significantly improves returns. The chart below is $1000 invested on a “buy and hold” basis as Simon suggests versus using the simple moving-average crossover analysis in the chart above.


Not only did the risk managed portfolio achieve better long-term returns, it did so with significantly less volatility. That lower level of volatility allowed investors to remain adhered to their investment discipline versus eventually being flushed out at the bottom of major market corrections due to the inherent emotional biases we all possess.

Okay, let’s get on with the rest of the nonsense.