Thread by @GRDecter

One year ago stocks dropped 12% in a single day.

The stock market can be a very confusing place.

Time for a thread 👇👇👇

1/ What is a correction in the stock market? A crash?

A correction in the stock market is generally defined as a drop of between 10-20% in the market indices in 1-2 days.

Whereas a crash is a drop of +20% in the same amount of time.

2/ What causes these drops?

Drops come from both internal and external factors to the market.

For instance, overvalued stocks (INTERNAL) can cause investors to pull money from the market, causing a dip.

But, EXTERNAL factors, like the COVID-19 pandemic, can also cause drops.

3/ Bear & Bull Markets

These drops can result in something called a BEAR market. This is when the 20%+ decline in the market lasts more than days or weeks.

Its counterpart is the BULL market: when prices in the stock market are rising over a prolonged period of time.

4.1/ Should I be worried about a correction?

Remember:

“All 28 corrections over the past 50 years have been more than COMPLETELY erased by a subsequent bull market rally.”

4.2/ Should I be worried about a correction?

BUT:

While the S&P has recovered from every single correction/crash, NOT EVERY SINGLE STOCK HAS.

It’s really important to invest in quality names!

5/ Can I time the market?

Short answer: no.

There’s no rhyme or reason for stock market crashes/corrections. That is to say, there’s no clear pattern in when these drops occur.

However, corrections provide great buying opportunities!

6/ Want more?

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