No, but read on to find out why: It looks like the market will finally get something that happens, on average, about once a year: a 10+% percent drop—the definition of a market correction.  They aren’t.  Corrections are unnerving, but they’re a healthy part of the economy—for a couple of reasons. Reason #1: Because corrections happen so frequently and are so unnerving to the average investor, they “force” the stock market to be more generous than alternative investments.  People buy stocks at earnings multiples which are designed to generate average future returns considerably higher than, say, cash or bonds—and investors […]

Investors shouldn’t overlook that there are two components to sharemarket returns – dividend yield and capital gains (or losses). Few investors would have missed the news reports of late pointing out that although Australia’s sharemarket has broken through the 6000-point mark, it’s still below the record pre-GFC high. But looking at share price movements alone can give investors a misleading impression and encourage them to overreact to short-term market shifts and other market “noise”. And by excessively focussing on asset price movements, investors may overlook the rewards from compounding total returns (as returns are earned on past returns) and from […]