It's natural to feel depressed watching your account values plummet over short periods of time. That is when it's most important to review why you own the stocks that are there, and what you think they are really worth.
Unless there is company specific bad news that cropped up recently, you'll probably be better off sitting tight, or buying more.
The chart below provides a unique view of the occurrence and magnitude of every 5% or greater pullback in the S&P 500 since the start of the current bull market on March 9, 2009.
All of the previous 16 selloffs led to new all-time highs within weeks to months. The recent decline, which began in October, is certain to follow that same path. Once you come to grips with the temporary nature of the pullbacks, no matter how painful they are while in effect, it becomes easier to buy into weakness.
The next graphic offers a more conventional view of the S&P 500. When seen on a long-term basis those sharp, but short, plunges don't appear scary at all.
That's not the message you hear, though, on CNBC and other media sources. Every one of them loves to tout every decline as leading to "the next 2008." That tactic is good for their ratings and click counts.
The most severe of the pullbacks tend to last longer than average. They typically end with the index trading south of its 200-day moving average. With the exception of the 2008-09 period, even those exceptionally sharp downturns rarely last longer than 1 to 4 months.
The important take away from the chart below is that sojourns to below the 200-day MA have proven to be the very best times to be accumulating shares. When people are nervous, as they are during declines, they'll give you their shares cheaply to alleviate stress. Smart investors get paid well to provide them that comfort by accommodating their desire to lighten up.
Ironically, the scariest environments are the least risky time to buy while also offering the biggest upside.
Corporate insiders are the very best at buying low. Nobody knows the true value of a company as well as the people running the show. Thus that group can confidently scoop us their own shares when the market offers up bargain pricing.
The Thomson Reuters Insider Sell/Buy Ratio is a good short-term indicator (looking out weeks to months, not years). The late Oct. 2018 selloff turned them into the most voracious buyers they'd been in over a year.
I already liked Realogy (RLGY) before seeing these director trades from the week of Nov. 12, 2018. RLGY went ex-dividend on Nov. 14 then fell to a new all-time low of $16.85 intraday on Nov. 15.
I bulked up my position dramatically after seeing their confidence in the firm. By 3:33 p.m., Realogy had rebounded to $17.40, up more than 3.25% from its morning low. (Realogy shares closed at $18.70 on Friday, Dec. 7).
People with a good idea of true value never shy away from buying because of "bad chart action." They needn't worry about whether others might be selling because they "know something you don't" about a stock making new lows.
The same principle applies to general market movements. Stocks fluctuate wildly at times but the long-term trend is always up. Stick with those facts and you'll be able to ignore all the media noise which leads others to poor decision making.
(This commentary originally appeared on Real Money Pro on Dec. 10. Click here to learn about this dynamic market information service for active traders and get daily columns like this from Paul Price, Doug Kass, Bret Jensen and others.)