How Rare Was Yesterday's Market Swoon?

Yesterday was ugly. At one point the Dow Jones (DJINDICES: ^DJI  ) was down nearly 400 points, or about 2.5%. It was the worst day of the year. 

How common is a hard fall like yesterday's?

I looked back at almost a century of market data. There have been 21,276 trading sessions since 1928. Yesterday was the 468th worst, or worse than about 98% of all other days.

That might sound bad, but it's really not. On average, we have six days a year as bad or worse than yesterday. About once every two months.

How many headlines did you see yesterday that said, "Dow has a pretty normal fall"? None. In the long draw of history, these big moves are fairly common, but we rarely think that when they happen. A big fall feels important, like the market is sending a message we need to listen to -- even if it isn't. 

If yesterday's big drop caught your attention, ask yourself three questions. 

1. Did you view it as an opportunity to buy good companies at lower prices? If so, great! You probably benefit from watching daily market moves. 

2. Did it make you anxious, or contemplate selling in order to avoid more losses? If so, you'd probably benefit from ignoring all market news. Set a schedule to check your portfolio, say, four times a year. Other than that, realize that tracking the market on a day-to-day basis is likely toying with your emotions and tempting you into decisions that you'll likely regret over time. 

3. Did you not care either way? Great. Congratulations. Now go find a new hobby besides reading financial news and let your money compound over time. 

More than a hundred years ago, someone asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. He's been right ever since. 

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Read/Post Comments (15) | Recommend This Article (38)

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  • Report this Comment On June 21, 2013, at 5:03 PM, Seanickson wrote:

    Thanks Morgan for putting this in perspective. I've found myself far more indifferent to the drops in the market than I used to be, but I still wont find a new hobby :)

  • Report this Comment On June 21, 2013, at 5:16 PM, EDJMCPS wrote:

    I always try to remember: Inspiration takes place on mountain tops, but growth always happens in the valleys. I try to plant all my growth seeds in valleys were it is most fertile. It's no different then being a farmer.

  • Report this Comment On June 21, 2013, at 5:18 PM, TMFTomGardner wrote:

    seanickson, I bet you are forming a nice new hobby -- the hobby of seeing down days as a time to think about buying. Of course, it doesn't mean that every 2.5% down day will lead to a 15% market climb. Sometimes, the down 2.5% -- as we know -- leads to another down 20% over the succeeding six months. Such is life. But as we train ourselves to buy when things are down. . . we set things up for a lifetime of prosperity. I'll be hanging right out here on The Fool with you, in good days and bad.

    Great article, Morgan. Thx.

  • Report this Comment On June 21, 2013, at 5:18 PM, PSU69 wrote:

    Enjoyed the post. Thanks. Yes, it will fluctuate. I would love to have the data on short selling.

  • Report this Comment On June 21, 2013, at 5:19 PM, TMFTomGardner wrote:

    EDJ, wow, I love that. Great thoughts.

  • Report this Comment On June 21, 2013, at 5:35 PM, bella66 wrote:

    Thanks for putting it into perspective. I checked, but just to see where things were going. No use in selling, the damage has already been done.

  • Report this Comment On June 21, 2013, at 5:38 PM, dgmennie wrote:

    Rather than get all warm and fuzzy about the recent 350+ point drop in the stock market, look a bit at what probably inspired it: Just a HINT from officials that the US Government would be cutting back on the financial meddling that has cut interest rates to the bone. Rates have already risen a bit in recent days. For this to cause major market jitters only seems to indicate that if there was no artificial clamp on interest rates, stock values would dump big time across the board. Its also proof that our "economic recovery" is a house of cards. Reality will (unfortunately) strike once QE and all the other temporary tricks are cut way back and/or discontinued.

  • Report this Comment On June 21, 2013, at 5:39 PM, jiminpedro wrote:

    EDJ is on target, if one can time the valleys. A 2.5% drop is a fairly rare statistical event, perhaps occurring 4 times a year. It is not an outlier event, but it does get your attention. This was bound to happen sometime considering how fast the S&P has risen this year.

  • Report this Comment On June 21, 2013, at 8:30 PM, Ostrowsr wrote:

    Let's see. Every 2 months the market goes down 2.5% and comes back 1% or so the next day. What a huge annualized gain! Is this a planned event that can be manipulated in some way? It seems like a way to bleed extra gains out of the market 6 times per year. And it would come almost entirely out of the pockets of retail investors. Any smart ex-finance guys out there who know the answer?

  • Report this Comment On June 22, 2013, at 4:42 AM, herky46q wrote:

    After these drops, I am hoping that is the time my employer is deducting my pay for the biweekly retirement savings contributions.

  • Report this Comment On June 22, 2013, at 8:33 AM, Virginview wrote:

    If you can't handle change the stock market is not for you! Perhaps coin or stamp collection would be a better interest?

  • Report this Comment On June 22, 2013, at 2:57 PM, frozenfour wrote:

    Brilliant! Are you sure you're not Warren Buffett?

  • Report this Comment On June 23, 2013, at 11:58 AM, Orionswallet wrote:

    I am hoping that it drops some more this week so that I can swoop in and buy some cheep stocks / funds.

  • Report this Comment On June 26, 2013, at 12:47 AM, mikecart1 wrote:

    It is only a beginning of things to come. I've been saying it for months. When the money stops, the market will tank, and I will be there to scoop up dozens of companies and be retired by the time I'm 35 lol!

  • Report this Comment On June 29, 2013, at 12:02 PM, Astuteness wrote:

    Little surprized no one is commenting about GOLD! It's really taking a hit. Any ideas?

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