The Correct Mindset to Have After the Stock Market Plummets

The Correct Mindset to Have After the Stock Market Plummets

Posted On February 28, 2020 1:27 pm

Every investor wants high returns but with low and limited risk.  This especially the attraction of using options. But in times of high volatility and sharp straight line moves such as has occurred over the past week the losses can be sweeping and total.

So, the question is how do you handle big drawdowns? Before getting to some specific behavior it’s good to step back for a longer-term perspective versus short term trading.

The past weeks’ near 15% drop is the largest and fastest correction from all-time highs in the past 70 years.  But while the velocity has been notable the actual size of the decline is well within historical norms.

Since 1950, the average maximum intra-year drawdown for the S&P 500 has been 13.5% with a median drawdown of 10.6%.  This means that if you had bought the S&P 500 on January 1 of any given year, on average, the market would be down by 13.5% at some point during the year:

maximum intrayear drawdown by year

Also, it’s good to note that since the financial crisis in 2008-2009 there have been multiple ‘events’ that would have provided reasons for people to sell.

Which of course would… Continue reading at StockNews.com

Tagged with:

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

Related Articles