Sunday, June 8, 2014

How much will the market correct?

I will give you the exact number how much the market will correct if my time machine has been fixed.

However, Newton's Law of Gravity never fails. The higher the market climbs, the more it will fall. A 10% correction is not a bad prediction though we've seen some 20%. I do not believe 25% as there is no bubble to me except a handful of bubble stocks such as Tesla. When the economy improves starting in 2015, the interest rate would rise and it would do some damage to the market.

It is quite rare not to have a 10% for the entire 2013. It is healthier for the market to take a breather from time to time especially for the market timers from the history of the market.

Another warning: It could be a self-fulfilling prophecy when so many warning articles on this risky market. When the big boys (institution investors who drive the market) act (most likely before their summer vacations of 2014), the sight of the market plunging will not be pretty.

Even the last chairman of the Federal Reserve Bank was clueless. When most of the available cash has been pumped to the market, the market will not go up as quickly as before.

Another law is fear and greed. I had a hard time trying to convince my friends in 2000 to sell some of their tech holdings. They're the 'lottery winners' and thought they're the smartest folks on earth by making big money in working 5 minutes a night. We seem to have the same herd mentality today.

If I were wrong that there is no correction by the end of 2014, it is the insurance (you buy it not expecting an accident to happen) and you have a good night sleep that could worth more gold on earth.
6/9/2014


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For my book Market Timing: Profitable, Predictable and Preventive, click here.
For my books on investing, click here.

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