Warren Buffett 2019 Letter: Don't Fret About Market Declines

Some takeaways from the value investor's latest letter to shareholders
February 28, 2020


Warren Buffett (Trades, Portfolio)'s 2019 letter to investors of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) couldn't have been published at a better time.



The week after the letter was published, markets around the world started plunging. They haven't stopped since.

Luckily, Buffett's letter contained some nuggets of information to help investors keep a cool head in the current turbulent environment.

Buffett's advice for long term-investors

No matter what your opinion of the Oracle of Omaha, you cannot deny that he has a vast amount of experience when it comes to investing. He has been buying and selling stocks and businesses since he was a teenager. That means he has around seven-and-a-half decades of experience in the market.

He has seen it all during this time: market crashes, bubbles, scams, the most prominent corporate failures of all time, conflicts, terrorist attacks, virus outbreaks and everything in between.

As such, Buffett has experience dealing with every market environment. His experience alone means that his advice is worth reading.

Here's what Buffett said in his annual letter when commenting on Berkshire's top equity holdings:

"Charlie and I do not view the $248 billion detailed above as a collection of stock market wagers – dalliances to be terminated because of downgrades by "the Street," an earnings "miss," expected Federal Reserve actions, possible political developments, forecasts by economists or whatever else might be the subject du jour. What we see in our holdings, rather, is an assembly of companies that we partly own and that, on a weighted basis, are earning more than 20% on the net tangible equity capital required to run their businesses."

In other words, Buffett views his investments not as gambling chips in a casino, but as an ownership stake in high-quality businesses.

He went on to state that he and Charlie Munger "have no idea what rates will average over the next year, or ten or thirty years," but that they're confident that stocks will outperform bonds going forward, especially those companies that earn a high return on capital.

Buffett also warned his readers about the unpredictability of the stock market:

"Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But the combination of The American Tailwind, about which I wrote last year, and the compounding wonders described by Mr. Smith [Edgar Lawrence Smith], will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions."

Don't worry

These few paragraphs from Buffett give us great insights into his investing mentality. Whenever he looks at a stock, he views it as a business. He's only looking to own high-quality companies with definite competitive advantages, which will help them produce high-double digit returns on invested capital over the long-run.

Buffett's not worried about what happens in the market in the short term. He's also not interested in trying to predict macro developments. His experience has taught him that, over the long run, high-quality businesses outperform, no matter what the macro environment.

We should keep this view in mind in the current market correction. Panicking and selling could be a big mistake. The global economy might suffer if the Covid-19 outbreak becomes a global pandemic, but in five or ten years, this set-back will seem like a distant memory. Companies that suffer a setback will have recovered, and the market's best businesses will undoubtedly be in a better position than they are today.

It is at times like these when it is essential to remember that investing is a marathon, not a sprint.


https://www.gurufocus.com/news/1057672/warren-buffett-2019-letter-dont-fret-about-market-declines

About the author:

Rupert Hargreaves

Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website

Small losses versus Big losses. They are different stories.

Small Losses

Small hits or losses are alright, so long as they aren't persistent or don't last forever.  That said, we cannot take 10% or even 5%, losses ongoing and forever.  Even if we under-perform the markets by a few percentage points, we can lose out on considerable gains once the power of compounding sets in.


Big Losses

Big losses are a different story.  We can tolerate the 10% corrections and even ignore the 10% twitter, but if we are exposing ourselves to 50% losses on individual investments - or worse, on substantial portions of our portfolios - look out!  It will take a lot to turn that ship around and get it back to where it went off course.


Fluctuations, minor corrections and bear market

There is a big difference between fluctuations, minor corrections (considered to be 10% pullbacks by most market professions), and an all-out bear market, usually considered a plunge of 20% or more.  The prudent investor senses the difference between fluctuations, corrections and the more destructive bear markets.


The high cost of an untimely hit.

Volatility can be expensive, especially, if it goes beyond normal investment noise into creating a significant downturn, especially at the beginning of an investing period.

The principles and effects of compounding makes a difference not just how much we succeed but also WHEN we succeed in the markets.

The general principle is that the more we can earn SOONER - to unleash the power of compounding to a greater degree over a longer time - the better off we are.

Conversely, if our investment capital takes a hit in the early going, it takes a lot just to get back to even, let along to get ahead.

The stock market is officially in a correction... here's what usually happens next

The stock market is officially in a correction... here's what usually happens next

"The average bull market 'correction' is 13 percent over four months and takes just four months to recover," Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer said in a Jan. 29 report.

But the pain lasts for 22 months on average if the S&P falls at least 20 percent from its record high — past 2,298 — into bear market territory, the report said. The average decline is 30 percent for bear markets.

The last week of stock market drops has taken the S&P 500 into correction territory for the first time in two years.


The S&P 500 fell officially into correction territory on Thursday, down more than 10 percent from its record reached in January.

If this is just a run-of-the-mill correction, then we are looking at another four months of pain, history shows. If the losses deepen into a bear market (down 20 percent), then it could be 22 months before we revisit these highs, history shows.

"The average bull market 'correction' is 13 percent over four months and takes just four months to recover," Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer said in a Jan. 29 report.



Source: Goldman Sachs

But the pain lasts nearly two years on average if the S&P falls at least 20 percent from its record high — past 2,298 — into bear market territory, the report said. The average decline in a bear market is 30 percent, according to Goldman.



The last week of stock market drops has taken the S&P 500 into correction territory for the first time in two years

Stocks remain in an upward bull market trend, the second longest in history.

S&P 500 corrections and bear markets since WWI



Source: Goldman Sachs

Evelyn Cheng CNBC



https://www.cnbc.com/2018/02/08/the-stock-market-is-officially-in-a-correction--heres-what-usually-happens-next.html?__source=Facebook%7Cmain

Buying Time

When the market hits its low, true value investors feel that harvest time has arrived.

"The most beneficial time to be a value investor is when the market is falling," says institutional manager Seth Klarman.  There are plenty of companies ripe for the picking.

In the summer of 1973, when the stock market had plunged 20 percent in value in less than 2 months, Warren Buffett told a friend, "You know, some days I get up and I want to tap dance."

Unfortunately, this is the time when investors are feeling most beat up by the markets.  Fear and negative thinking prevail, and anyone who has faced down a bear knows how paralyzing fear can be.  This, at the depths of a bear market, is the time to buy as many stocks as are affordable.

Value bargains aren't found in strong market.  A good rule is to examine stock markets that have reacted adversely for a year or so.

Undervalued stocks quite often lie dormant for months - many months - on end.  The only way to anticipate and catch the surge is to identify the undervalued situation, then take a position, and wait.

Benjamin Graham: "Buying a neglected and therefore undervalued issue for profit generally proves a protracted and patience-trying experience."

Patience - a fundamental investment discipline to have a lot of.

There is only one strategy that works for value investors when the market is high - PATIENCE.

The investor can do one of two things, both of which requires steady nerves:
1.  Sell all stocks in a portfolio, take profits, and wait for the market to decline.

• At that time, many good values will present themselves.
• This may sound easy, but it pains many investors to sell a stock when its price is still rising.

2.  Stick with those stocks in the portfolio that have long-term potential.

• Sell only those that are clearly overvalued, and once more wait for the market to decline.
• At this time, value stocks may be appreciating at slow pace compared with the frisky growth stocks, but not always.

But come the correction, be it sudden or slow, the well-chosen value stocks have a better chance of holding their price.

As for the hot stocks, when they take a hard hit the investor is cornered.  If the stock is sold, the loss becomes permanent.  The lost money cannot grow.  If the investor hangs on to the deflated stock, the long trail back to the original purchase price will deeply erode the overall returns.


Comments:


When you buy wonderful companies at fair or bargain prices, you can often hold these forever.  The earnings power of these companies ensure that your returns will be positive over the long term.  You often do not need to sell, even if these companies are slightly overvalued as their intrinsic values in the future will probably be higher than the present prices.  When the share prices of these wonderful companies go down in tandem with the market corrections or bear markets, you often have the chance to buy more at lower prices.  The only action you should avoid is to buy these wonderful companies when they are trading at obviously overvalued high prices.  A wonderful company can be a bad investment when you buy it at a high price.

Correction: CNBC Explains

Published: Friday, 5 Aug 2011 

By: Mark Koba
Senior Editor

A correction may sound like it means something is getting 'fixed' on Wall Street, but actually it's a word used to describe both a trigger for financial losses, as well as buying opportunites for investors.

Timothy A. Clary | AFP | Getty Images A concerned trader on the floor of the New York Stock Exchange.

So what is a correction? How does one come about? What does it mean for the stock market? CNBC explains.

What is a correction?

A correction is a decline or downward movement of a stock, or a bond, or a commodity or market index.

The amount of the decline is at least 10 percent and a true correction exceeds that amount.

In short, corrections are price declines that stop an upward trend.

Why do corrections happen?

Stocks, bonds, commodities, and everything else traded on the markets never move in a straight line, either up or down. At some point their value will change—for better or worse.

When stock or bond prices go up, it may seem like there's no end to how high they can go. When this happens, stocks or bonds become 'overbought.' That means some investors will try to buy into the rise of stock prices with the hope of making profits before a downward trend begins.

But as they do buy in, the investors who bought earlier—helping to push the stock or bond price up—will consider selling when they think the price is near a peak. Investors might base their thinking on an earnings report for a certain stock that shows flat profits, or a belief that a certain industry will face trouble. Any kind of 'bad' news can trigger a sell-off.

And sometimes, investors will simply take profits as the market heats up. In either case, the selling pressure drives prices down.

How long do corrections last?

Corrections generally last two months or less. They usually end when the price of a stock or a bond 'bottoms out'—for example, some will point to a stock reaching a 52-week low—and investors start buying again.

How is a correction different from a bear market or "capitulation"?

A correction is shorter in length and generally less damaging to investors than a bear market. A bear market happens when equity prices keep falling and investors keep selling into a downturn of 20 percent or more for the overall market.

The difference between a capitulation and correction is simply that a capitulation is more severe. A capitulation  , is said to occur when investors try to get out of the stock market as quickly as possible. It's also described as panic selling. Capitulation usually is based on investor fears that stock prices will plunge even further than the current low levels.

Bottoms—or the lowest price for a stock or market index—are formed more quickly in corrections than in capitulations.

Is a correction good for the market?

Many investors and analysts look at corrections as a necessary 'evil' to cool off an overheated stock or bond market. This is to prevent a huge sell-off or 'bubble burst,' as what happened with Internet stocks in 2000-2001.

It's believed that corrections adjust stock prices to their actual value or "support levels," and so, are not overpriced or inflated.

Many short-term investors look at corrections as a buying opportunity when the stock or the overall market has reached a bottom or the lowest price level. Their buying helps push the price back up and stops the correction.

What is an example of a correction?

Corrections are fairly common. We can look at the S&P Index to see one.

As the chart below shows, the S&P 500 closed at 1,363.61 on April 29, 2011, its highest level since June 5, 2008.

On Thursday, Aug. 4, 2011, at 11:26 a.m. ET, the S&P 500 hit a low of 1,225.95, entering “correction” mode, defined by a drop of 10 percent or more.

© 2011 CNBC.com

http://www.cnbc.com/id/44033215/Correction_CNBC_Explains

Share clubs: learning together

By Gillian Bullock, ninemsn Money

The lessons learnt from a share market correction can prove invaluable for the many investment clubs around Australia. Those that can ride market volatility are the survivors.

But that's the point — share clubs are in the main all about learning … and there's a lot to learn from market downturns.

As Kerrie Brown of LIPS (Ladies Investment Portfolio Syndicate), which has been running for 11 years, says, "An investment club is for learning, not for making huge amounts of money."

But of course you can make money. Indeed, Brown says her club has enjoyed an annualised return of 14 percent [prior to this year's market correction] and that was "despite making some doozie mistakes".

Another long-running investment club is Sheba Investment Network. Frances Beck says her club has posted returns of up to 30 to 35 percent a year following a range of basic investment techniques, including willingness to sell when the investment reaches a predetermined amount and reinvesting all profits and dividends.

Beck and three of her fellow club members have just launched their book The Money Club, which provides information on establishing and running a club.

A key to success is for members of the club to have common goals. According to the Australian Stock Exchange, clubs that fail within 18 months are those that have disagreement among members on an investment strategy.

That's not to say a strategy cannot evolve over time. For instance, Beck says, "Our strategy has changed over the years, with a consolidation of our investment portfolio to fewer, larger stocks. We have sold out of our non-performing shares and now concentrate on stocks which deliver earnings and dividends." The club's portfolio includes AMP, Argo, BHP, Rio, Alesco and Bank of Queensland.

Similarly, LIPS changed its strategy over the years and now no longer invests in speculative stocks. "Our best purchase was the small Queensland company Campbell Bros that we bought at $4 to $5 and it's now trading around $29," says Brown. Most investment clubs have a partnership structure. You cannot have more than 20 partners otherwise the club would be classified as a managed investment scheme and you would need to issue a prospectus. And all members need to be actively involved in the club otherwise the non-active partners may be deemed to be receiving advice from the active partners who would then need an advisory licence to operate.

According to Beck, the best number of members is fewer than 12. Sheba Investment Network at one stage had 15 members but that proved unwieldy. The club now has six members.

LIPS, meanwhile has eight members, five original while the other three joined a long time ago.

Half the point of an investment club is the social aspect, but you should still pay meticulous attention to taking minutes at every meeting so that there are no arguments down the track about which shares you buy and how much you pay for them. And you need to keep records for tax purposes. Most clubs meet monthly — any less frequently and you could miss buying opportunities.

Success lies in buying at the right time. Brown says she and her partners were "rubbing our hands together when the market recently dropped as we hadn't been buying for a while".

Most clubs require a contribution of $50 or $100 a month.

Before you set up a club, get advice. The Australian Stock Exchange (http://www.asx.com.au/investor/education/investment_clubs/) has some good guidelines but you can also check out The Money Club website (www.themoneyclub.com.au).

Given you are buying and selling shares, you need to register your club, acquire a tax file number, open a bank account and file an annual tax return. But with the legalities out of the way, a share investment club can be a lot of fun.

http://money.ninemsn.com.au/article.aspx?id=304466

Market in Turmoil Again

Is this a healthy correction?
Is this another bear market?
Will you be seeking for shelter?
Will you be seizing this as an opportunity to buy?

How to make the most of this market correction

Markets going through a correction phase

Vikas Agarwal, ET Bureau



The equity markets, globally, are going through a correction phase at the moment. The financial crisis in the Euro region is the main reason behind this sharp correction in the global stock markets. Some of the Euro zone countries have mounted a high sovereign debt. These countries are finding it difficult to repay the loan and can't take independent monetary policy actions due to their partnerships in the common currency - the Euro.

On the other hand, the domestic markets have also corrected by almost 10 percent over the last few weeks, even though there are no fundamental issues with the domestic economy or business houses. This indicates the domestic markets have a sound foundation and they will be among the first markets globally to recover from this downtrend.

Investments in equity more attractive

Therefore, investments in equity in the domestic markets have become more attractive at the lower levels. Usually, when one talks of investments in equity or equity-based instruments, many still think of it like a bet. In fact, equity-based instruments should be part of every investor's investment portfolio. However, the percentage of allocation towards equity and debtbased instruments should depend on the risk profile of the investor.

Although debt instruments are considered relatively safe options, there is a hierarchy of risk even among debt instruments. An investor has to look at the trade-off between risk, return and liquidity while taking an investment decision. Since the markets have corrected significantly, investors can look at a slightly higher allocation towards equity-based instruments.

Here's how you can change your portfolio composition:

Fresh investments in equity

One simple method is fresh investments in equitybased investment instruments. For example, you can make investments in stocks or mutual funds. Investors with a low risk profile can look at subscribing to some of the IPOs of public sector companies which are expected to be launched in the next few months.

The government is disinvesting in several public sector companies to raise funds to partially fund the fiscal deficit. These stocks are usually considered safe investment options as these companies have a solid business model and the backing of the government. And on the other hand, you get the flavour of investing in equity as well.

Shift some debt to equity

You can also look at diverting some short-term debt investments to equity-based mutual funds. However, since the market conditions are a bit uncertain at the moment, you should assume a medium to long-term horizon for your investments in equity-based instruments. However, it is important for investors to invest only their risk capital in equitybased instruments at this point in time.

You can also look at converting your debt-based mutual funds to equitybased funds. Since the interest rates are expected to go up, the existing debt instruments will lose some of their face value. Since the equity markets are going through a correction phase, it is a good idea to convert a part of your debt-based investments to equity-based investments.




http://economictimes.indiatimes.com/quickiearticleshow/5964177.cms

US stocks plunge as economy worries bite. There's a whiff of fear back in the air.

US stocks plunge as economy worries bite
May 21, 2010 - 6:43AM

Dow Jones slides on world's woes
US stocks plunged again Thursday on fears Europe's debt crisis might spread around the world.

US stocks sank nearly 4 per cent overnight on growing fears the euro zone's efforts to tackle its sovereign debt crisis will fall short, jeopardising the global economic recovery.

Selling picked up speed late in the day and indexes closed around their session lows after the US Senate voted to end debate on the sweeping overhaul of financial regulation, allowing a final vote on the bill later on Thursday or Friday.

What you need to know
The SPI was down 89 points at 4228
The Australian dollar was buying 82 US cents
The Reuters Jefferies CRB index fell 1.02%

The S&P 500 finished down 12 per cent from its April 23, 2010, closing high, signaling a correction and marking the worst day since late April 2009. The index also ended below its 200-day moving average, a sign the momentum downward could build.

The correction comes on the back of a stream of negative news out of Europe, from worries over Greece's debt crisis to Germany's unilateral decision this week to ban naked short-selling.

Banks and commodity-related stocks, which are more sensitive to economic cycles, were among the hardest hit, with the KBW Bank index sliding 5.1 per cent. The S&P Energy index fell 4.4 per cent, while US June oil futures fell 2.7 per cent, or $US1.86, to settle at $US68.01 a barrel in volatile trade on the day of its expiry.

"The primary mover is coming from Europe. There are still fears of a debt crisis over there and the fact that it could spread to the banking system," said Bernie McSherry, NYSE trader at Cuttone & Co in New York.  (Liquidity issue is temporarily solved, but not the solvency issue.)

The Dow Jones industrial average dropped 376.36 points, or 3.6 per cent, to 10,068.01. The Standard & Poor's 500 Index slid 43.46 points, or 3.9 per cent, to 1071.59. The Nasdaq Composite Index lost 94.36 points, or 4.11 per cent, to 2204.01.

May individual equity options and some options on stock indexes will stop trading at Friday's close and expire on Saturday, which may increase volatility.

The Chicago Board Options Exchange Volatility index, Wall Street's so-called fear gauge, surged 31.3 percent earlier to 46.37, its highest intraday level in more than a year. But the VIX pared back slightly to end up 29.6 per cent at 45.79.

In a sign of heightened fear, 2.5 million puts have traded across all the exchange traded funds, which is three times the normal and about 51 per cent of the total put volume.

Disappointing economic data on the domestic front also contributed to the downdraft. The number of US workers filing new applications for unemployment benefits unexpectedly rose last week for the first time since early April.

The index of leading economic indicators slipped last month for the first time since March 2009, while factory activity in the US mid-Atlantic region accelerated less than expected in May.

Large manufacturers' shares ranked among the heaviest weights on the Dow, with Caterpillar down 4.5 per cent at $US58.67 and 3M falling 3.5 per cent to $US79.62.

Uncertainty surrounding the final outcome of the financial reform bill weighed on financial shares and hindered the market overall, McSherry said.

"Put it all together and there's a whiff of fear back in the air. Hopefully, it doesn't metastasize and get worse."

Analysts said the correction could be healthy for a market that surged as much as 80 percent from the March 9, 2009, closing low. But if worries over the recovery's sustainability persist, it will be difficult for stocks to bounce back.

Reuters

The Bull Run may continue for quite some time but has become more vulnerable to a correction.

Time and time again, some investors have been forced to sell on the cheap when they read reports that there would be tightening in lending, plans to withdraw stimulus measures as well as valuations being overstretched.

Time and time again, some of them sell during a correction only to be caught flat-footed when a rebound occurs almost immediately.  For example, they bought into a stock at $1, rode the bull market to $1.20 and sold at $1.10 when there was a correction.  The share price immediately shot up to $1.15 before they even knew what happened and missed the next wave to $1.30.  While some of them would have given up on this stock, there are others who jump back in at $1.30 only to sell it at $1.20 during the next correction.

They are scared, so they sell.  This is human nature and there is nothing we can do about it unless we can stand firm and not sell if we are able to identify that we are in the midst of a Bull Run, so selling out for a small profit is never an option.

Yes, the Bull Run is still very much alive but has stalled after a spectacular rally from March.

Much of the easy money has been made and the investors are now treading in treacherous territory where the chances of a correction are high, especially when most people are sure that growth in 2010 will be sluggish.

Even US Federal Reserve Chairman Ben Bernanke has admitted that 2010 will not be a wonderful year.  This has made investors sit up and rethink their strategy with some choosing to take profit or continue staying on the sideline until the clouds clear.

With several uncertainties still looming, it is no wonder that investors refuse to chase the rally preferring to sell every time the rally reaches a fresh recent high.  However, they have to remember that they are still in a Bull Run that may continue for quite some time but has become more vulnerable to a correction - in particular a correction that has to be as deep as 10% - when economic fundamentals in the first quarter of 2010 cannot support the rally.

Share Investment
Issue 372
14/12/09 - 27/12/09
www.sharesinv.com

Read:

BELIEVING A BULL MARKET

and also:

THRIVING IN EVERY MARKET
Value Investing Made Easy (Janet Lowe):

1. THRIVING IN EVERY MARKET
2. MR. MARKET
3. SUITABLE SECURITIES AT SUITABLE PRICES
4. PAYING RESPECT TO THE MARKET
5. TIMING VERSUS PRICING
6. BELIEVING A BULL MARKET
7. THE PAUSE AT THE TOP OF THE ROLLER COASTER
8. MAKING FRIENDS WITH A BEAR
9. BARGAINS AT THE BOTTOM
10. SIGNS AT THE BOTTOM
11. BUYING TIME
12. IF YOU ABSOLUTELY MUST PLAY THE HORSES

Protection During a Stock Market Correction? Advice to Survive a Bear Market Crash

Protection During a Stock Market Correction?
Advice to Survive a Bear Market Crash
Feb 9, 2010 Kurtis Hemmerling

When stock market prices correct, or even go into a bear market, how can one hedge against it?

The stock market has three basic cycles: bull, bear, and consolidation.

Bull Markets Precede a Stock Market Correction
The stock market is driven by growth. Companies are aggressively fighting for the same piece of investment dollar. Large double or even triple digit growth attracts long term investors who want to build for the future. At this stage the market climbs – often rapidly.

The Market Corrects or Consolidates
If the stock market continued to push upwards, the price of the average share would far exceed any reasonable valuation. That is why the market must correct itself and deflate. A fall of up to ten percent is considered a correction only.

The Exchange Crashes and Turns Bear
If the growth bubble is too large, or if sentiment is particularly sour based on economic events, the stock market may fall in excess of ten percent. At this point it is dubbed a ‘bear market’. The prices are in a severe downturn where negative sentiment rules the trading patterns.

Really, the stock market is a pattern of growth, bubble, burst. And then it starts all over again.



Read more at Suite101: Protection During a Stock Market Correction?: Advice to Survive a Bear Market Crash
http://investment.suite101.com/article.cfm/protection-during-a-stock-market-correction#ixzz0f6KrMI8d

Are you strategized to gain from a correction or a bear market?

Correction:  When stock prices fall 10% from their most RECENT peak.
Bear market:  When stock prices fall 25% or more from their most RECENT peak.

Statistics:

• There were 53 corrections during the last century.
•  That is, 1 correction occurred every 2 years. (1:2)
• 1 in 3 corrections have turned into bear markets.(1:3)
• That is, 1 bear market appeared every 6 years.(1:6)

Nobody knows who coined the term "bear market."

You can make a better case for calling a bear market a lemming market, in honour of the investors who sell their stocks because everybody else is selling.

Though financial losses are linked with the appearance of the bear market, there are also those who gained from the bear market.  Are you strategized to gain from a correction or a bear market?

1929:  Papa Bear market
1973-74:  Momma Bear market, average stock was down 50%.
1982: Bear market
1987:  Crash of 1987, Dow dropped over 1000 points in 4 months; 508 of those points in 1 day.
1990:  Saddam Hussen bear market when investors worried about the Gulf War,
1997:  Asian Financial Crisis Bear market
2001:  Technology Bust Bear market
2008:  Credit crunch Bear market

Investors can't avoid corrections and bear markets

Investors can't avoid corrections and bear markets any more than northerners can avoid snowstorms. 
In 50 years of owning stocks, you can expect

• 25 corrections, of which
• 8 or 9 will turn into bears.

You can expect 1 correction every 2 years, on average.

You can expect 1 bear every 6 years, on average, that is, every 3 corrections turned into bear markets.

Crashes, corrections and bear markets cannot be predicted exactly

Nobody can predict exactly when a bear market will arrive (although there's no shortage of Wall Stree types who claim to be skilled fortune tellers in this regard).  But when one does arrive, and the prices of 9 out of 10 stocks drop in unison, many investors naturally get scared.

They hear the TV newscasters using words like "disaster" and "calamity" to describe the situation, and they begin to worry that stock prices will hurtle toward zero and their investment will be wiped out.  They decide to rescue what's left of their money by putting their stocks up for sale, even at a loss.  They tell themselves that getting something back is better than getting nothing back.

It is at this point that large crowds of people suddenly become short-term investors, in spite of their claims about being long-term investors.  

• They let their emotions get the better of them, and they forget the reason they bought stocks in the first place - to own shares in good companies. 
• They go into a panic because stock prices are low, and instead of waiting for the prices to come back, they sell at these low prices. 
• Nobody forces them to do this, but they volunteer to lose money.

Without realising it, they've fallen into the trap of trying to time the market.  If you told them they were "market timers" they'd deny it, but anybody who sells stocks because the market is up or down is a market timer for sure.

A market timer tries to predict the short-term zigs and zags in stock prices, hoping to get out with a quick profit.  Few people can make money at this, and nobody has come up with a foolproof method. 

Market Correction

Short term traders should be careful.

Long term investors can buy into good quality stocks when these shares correct 10% to 15% from their high prices.  Be ready to buy when the market corrects significantly.  There are still many good stocks selling at good valuations.