CapitalTime

Articles on investing and capital management, with a quantitative focus.

Expect a Correction

2024-11-10

This post will be “stating the obvious”, but sometimes I like to remind myself of these things.

Markets don’t run straight up, forever. At some point, there will be a correction, and I am mentally preparing myself for that correction. I’m expecting a correction. Based on previous history, the typical (frequent) drawdown for my diversified portfolio is usually 5%.

Why would I remind myself of something so obvious? Even after investing for so many years, I still find it’s easy to get carried away with euphoria during very strong periods. My portfolio’s year-to-date gain is now 17%. In contrast, the best year in my multi-decade dataset is 13%. This shows how unusually strong this current year has been!

I think it’s healthy to have realistic expectations. The market could decline somewhat, and still produce a very good return this year.

I’m not selling anything or trying to time the market. Nobody can predict what the market will do. For all we know, this rally might continue for some time.

— Jem Berkes