Every systemic market correction comes with good (and bad) advice from market pundits. Here’s a list of what works and what doesn’t.

Even the most seasoned investor has been tested over the last few months. During market upturns, investing is a simple process. Portfolio values increase, and investors are a happy, if complacent bunch. But, the opportunities in the stock market are not without risk, the primary of which is a systemic market correction. There are common themes that are heard time and time again during these corrections, and I feel fortunate that I entered the banking business during the depths of the correction in the 1970’s, and remember hearing similar things then as now.

It’s different this time

This is unlike previous corrections because…blah, blah, blah. Every market correction is different, obviously, because no two occur with identical financial circumstance. There are, however, similarities which include panic selling, increased volatility (which is just a description of the depth and the height of price swings) and the decrease in company earnings that accompany a recession.

Go to cash

That is the perfect advice if, and only if, you possess two vital skills

  1. The ability to predict a market downturn before anyone else does, and
  2. The ability to predict a market upturn before anyone else does.

Those market pundits who tout their superior forecasting skills by showing that they predicted this downturn and sold all their stock last year must now “call the bottom” of this correction and reinvest their money before the upturn. There are trillions of dollars in money market funds being held “on the sidelines,” consisting of people who sold in a panic as well as those who are hesitant to buy now. This extraordinary amount of cash will push the market up quickly when it is reinvested, and missing that upturn will likely result in foregoing the majority of the profit the market will enjoy in its turnaround. Who has successfully and consistently predicted market movements in both directions?

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No one. So smart investors, who know that a market correction is a predictable event that happens about every 7 – 8 years, stay invested. After all, these investors invest only long term money in the stock market, and they know that long term means 5 – 10 years. They can wait it out.

Buy gold

Gold has always been a “hedge” against economic disaster. That means that when everything else goes down the drain, gold has tended to do well. Even Peter Lynch, in his book “Beating the Street,” recommends holding about 5% of a portfolio in gold “just in case.” When there is NOT an economic disaster, investing in gold is a pitiful investment that has underperformed virtually every other asset class.