Stock Market Corrections: Why Markets Stumble

Every so often, the markets take a tumble, sometimes of a material magnitude. What causes these drops, and why do they happen when things are up? Let's explore these questions and more with today's episode.
Intro/Outro Music: www.bensound.com/royalty-free...
DISCLAIMER:
This channel is for education purposes only and is not affiliated with any financial institution. Richard Coffin is not registered to provide investment advice and as such does not provide recommendations on The Plain Bagel - those looking for investment advice should seek out a registered professional. Richard is not responsible for investment actions taken by viewers.

[@ThePlainBagel]

Happy Friday everyone! What are some tips you have for navigating corrections? Let me know down below!

[@wotchadave]

Corrections don't matter if I hold onto my stocks for 20 years

[@legionreaver]

So essentially a correction is the active traders exiting their position for whatever reason and then they bottom out when they run into the barrier created by passive investors who don't even realize the correction is happening and intend to hold for years. Then as this barrier is tested and retested confidence among active traders returns and they begin buying again. So I guess the real question about Tesla and other tech companies is how long will long term investors hold out relative to the number of active investors. As an Example if a majority of investors intend to hold for a decade or more then no problem but if something happens and the long term investors start selling then you will see the price drop very rapidly and it will not recover fully until those long term investors return.

[@donald123123]

Excellent explanation. Time in the market > timing the market.

[@ThePlainBagel]

Words to live by!

[@petergriffin9902]

Thanks, I was very confused why I was losing money.

[@Bobatheman]

Because you bought an overvalued asset that's why you lost.

[@captainawasome8985]

@@Bobatheman He didn't lose. You only have to wait a bit longer for the stock to recover.

[@UnknownPerson-xe8hx]

@@SadMGB well need about 2 weeks to crash the stock market

[@beaviswealth]

Amazing video. Love the rubber band analogy. This was great, Richard!

[@ThePlainBagel]

Thanks Brandon!

[@103798]

-10%? That a normal bitcoin day..

[@adriantrummer7230]

Ok Zoomer

[@breezyoverjezuz21]

You can say that again pal

[@benjones4056]

This is so relevant now

[@proonty]

lol

[@WajahatMughal]

Yupppp

[@perrinayebarra]

This bull run has gone on so long that there’s an entire generation of investors who’ve never experienced a crash or even a bear market really. I wonder how they’ll react in the next one.

[@x10mark24]

they panic and people buy up all the toilet paper

[@RaviPatel0223]

Lol well that next one is going on right now

[@ominous_stranger]

You don't wanna know...

[@ian9094]

@@ominous_stranger hahaha

[@jacobg8640]

Anyone who cashed out probably regrets it since it recovered so quickly. Now they're going to buy back in and covid is going to make it drop again somehow.

[@joseavalos6184]

These videos are informative and well-illustrated. Keep up the fantastic work!

[@alejandromeneses3040]

Plain Bagel you are the best explaining the stock market

[@InvestingBookSummaries]

The tasty bagel is back at it again!

[@Kevin_Street]

Thanks for another great video! It helped me feel a little better about this stressful time. Seems like the best strategy right now is to just wait for an upturn. Hold on to your investments and don't sell.

[@NWY-ui7kf]

The Bullmarket is just a reflection on the monetary policy which has made the market more leveraged and fragile. The irrational exuberance is more evident and the interest rate is just disclosing this fact. 2007 the interest rate was more than 5%, before the interest rate was reduced during 2008, which was still not able to prevent the financial meltdown. Now the rate is 2%. The economy will not endure a interest rate at 3%, before another crash.... - I enjoyed your video very much!

[@beaumanVienna]

I think so too. The markets had to digest four hikes of the Funds Rate in 2018, which was too much in this short amount of time. There's also the quantitative tightening, where bonds and other assets are being sold big time to take money out of the market. Rich, you were asking for tips for navigating corrections. I shed one out of my five growth components in my portfolio: imgur.com/a/Z2z1lch I used this ETF because, in my opinion, ETFs are less volatile and thus more indicative for a correction.

[@GiveMeFive-GMF]

Quality presentation. Well done.

[@stevewashere8710]

Thank you for a great understanding

[@0700andrea]

Useful information, thanks!

[@nachannachle2706]

Very concise and multi-perspective video. You rock! :) I really think you should work for PBS...I don't think they have the Stockmarket covered so far on their channels.

[@ThePlainBagel]

Thank you, I'm flattered! PBS, if you're watching, I'm open to a job offer ;)

[@forcis12]

Your videos are great and much appreciated!

[@ThePlainBagel]

Thank you!

[@JulioLopez-xz5kx]

Well done!

[@lawrencer25]

Great video. Thank you 👍👍👍👍

[@MrLeo625]

Very well explained 👍🏻

[@divizionx]

Computer algorithms. A great book to read is Flash Boys.

[@ThePlainBagel]

divizionx I’ll check it out!

[@boltonmuhindi5885]

Interesting, more tips

[@jaym9846]

When does the rubberband snap?

[@ThePlainBagel]

Well corrections (like today) happen all the time. As for the larger, "mother of all downturns" some people are forecasting, it may never occur. Anyone who pretends to know when the next downturn will arrive is making an educated guess at best!

[@Discovery_and_Change]

On Wednesday, January 5th, I lost -2.91% of my portfolio after the FOMC interest rate news. I thought one bad day is all it was going to be. Turns out, over the next 2.5 weeks, the market kept going down and I lost -9.05% by continuing to hang on. Now we're going on 5 weeks since that dreaded day and I'm wondering how long it will take to get those -9% back.

[@uonlyliveonce4375]

Solid channel!

[@benjones4056]

Well explained video

[@Discovery_and_Change]

I've been investing for 18 months (since August 2020) and I'm experiencing my first correction, which started January 2022. I got down -11% and now I'm wondering how long it'll take to recover that 11%.

[@anthonyqcolosimo5374]

Time in the market is key

[@amirkhokhar5914]

Good explanation bro.

[@Kartik-mz7sk]

Excitingly!!

[@JBulsa]

So looking back what signaled these corrections?

[@thehulk10]

i dont know what im doing, im just happy to be here! :)

[@m.morininvestor9920]

I'm happy that you're happy 😊🤣

[@jasonslade6259]

Just FYI, Lemmings don't actually run off of cliffs like that. That was a fiction created by Disney to sell one of their nature documentaries.

[@ThePlainBagel]

Jason Slade I’ve heard that before, but I figured it was still a useful way of conveying the characteristic of the market place

[@AwesumBear]

finally, some bear representation!

[@KPad87]

I love buying the dip .

[@Discovery_and_Change]

In 2018, S&P 500 was at 2,872 on January 26th. It dropped and didn't reach a new high until August 24th at 2,874. (7 months to recover) (I'm trying to get some perspective for this new correction going on since the start of 2022..)

[@mohammediqbal734]

Glad I’m here now

[@LewdCustomer]

So the market isn't a measure of investor sentiments, it's more a matter of physics, stretchy bands and gravity. Boy did I have the wrong idea.

[@irammalik927]

Hi Richard, what books would you recommend if I want to learn how the stock market works? I would really appreciate a reply from you

[@eMeLeGe1007]

Lol he didbt reply

[@simonchau8675]

Dude honestly the dummies book are really easy to digest. Start with those books take notes and if you feel ready read more because you'll have missed something

[@jeansoo-learngrowserve3266]

And now the bull market has ended :( 4:48

[@iirekm]

Not only active or big investors make stock prices shake. Also human greeds, fears and "following the herd" can quickly lead to stock prices being crazy, or different than general economy state.

[@feynstein1004]

This is basically like a mini bubble that pops and crashes overvalued stocks.

[@obstbrei]

Nice Video :)

[@sessixact]

Explain to me why this is in my recommended today

[@captainawasome8985]

After a massive sell, the stock can be really undervalued. Another youtuber mentioned George Soros view that a stock always moves in an approximation to the value. Sometimes the approximation is way off at the extreme high and lows.

[@Shibansh]

and then came 2020!!!

[@NewEnglandGaming413]

What iv never understood is doesn't someone need to buy the share if you sell it? So wouldn't there always be an equal number of buys and sells?

[@spicex4k901]

Yes. But if the buyer is less willing to buy the price goes down to a price they want.

[@factsverse9957]

Huh it has just happened a few days ago

[@user-yx8fo4ni7e]

I learned that the stock market was a rich man's game (yes, grandparents lost it all back then and preached that forever) but I've been around long enough to really taste how great it can be. To be profitable, with inflation at 6.1% These are surely desperate times, but in my opinion, there is no market condition that a good financial advisor cannot navigate, especially those that have existed since the crisis of 2008 and before.

[@user-yx8fo4ni7e]

Stocks are pretty unstable at the moment, but if you do the right math, you should be just fine. Bloomberg and other finance media have been recording cases of folks gaining over 250k just in a matter of weeks/couple months, so I think there are alot of wealth transfer in this downtime if you know where to look.

[@AllexFerreira]

I have a question when the price of bitcoin go up to quick people normally say : Wait for the correction Is there a such thing like Bitcoin price correction?

[@ThePlainBagel]

Possibly! It's hard to know because whereas a stock has it's value anchored to profits/assets, crypto is purely based on supply and demand. That being said, it is very volatile and will surely drop in price at points in the future.

[@AllexFerreira]

@@ThePlainBagel there is something relate to what you said in this video. bitcoin more and more are dominate by big institutions and corporations . meaning there is no adoption of people . it feels that they are only exchange positions and take advantage of the swings . so is hard for me to believe that there is a “Marketn” correction , you can see the movements of the values (usdt) going in and out of the exchanges so it makes me wonder also is what is market in bitcoin world as people that controls are only few institutions .

[@vincentdesapio]

John Bogle had the best advice. Invest in a diversified portfolio and don't look at it for years. You'll be surprised years later how much it has grown.

[@erichvonmolder9310]

Higher interest rates were the thing, now it is the inverse - how things change. The Market, for the most part, is hit and miss. It seems like all these charts, graphs, pundits (billionaires investors) really don't know either, even though they make it seem they know what is happening. They got game, don't they?

[@RaviPatel0223]

4:56 lol 1 year later rip bull market 2009-2020

[@jacewhite8540]

And then the trump pump came

[@tipsy09]

When you buy stocks you increase your position in the company and the money goes to the company, right? But when you sell stocks, where does the money go? Especially when things are going down.

[@ThePlainBagel]

The money only goes to the company if you buy the stock from an issuance (i.ex their IPO). After that, all the money is between the buyer and the seller. A high stock price is still beneficial for the company though; it can allow them to issue more shares in the future.

[@tipsy09]

The Plain Bagel so what happens when you want to sell your shares when the stock price is plummeting?

[@ThePlainBagel]

@@tipsy09 For the company or for you as an investor? The reason the price is falling is because there are more people trying to sell than buy. This means that if people want to sell their shares, they have to offer buyers a more attractive price. If a stock is liquid enough (i.e. it has a big enough market) you should be able to sell your stock regardless of what the market is doing (save for extreme circumstances). For the company, a low stock price means it will be harder to raise capital through a share issuance. At the same time, they could buyback their shares at the cheaper price, reducing their number of shares outstanding and thereby improving the value of their stock (i.e. their profits are split among fewer shares).

[@tipsy09]

The Plain Bagel okay so just say at this moment I want to sell all my shares in a company, I just push a button and it’s sold?

[@ThePlainBagel]

More or less. Most brokers have an online platform, you put in an order (I.e. sell position) and usually the position will be sold instantly. For the investor it’s pretty seamless, behind the scenes it’s actually a computer system connecting your sell order with a buy order. When orders are bigger or when stocks are less liquid, the order may not be filled as quickly, and you may even not have the order filled. This isn’t a problem for most etfs or stocks though

[@Discovery_and_Change]

3:06 There are roughly 177 million individual investors in the U.S. (about 54% of the 2018 total population)

[@gilgamesh310]

I knew about the financial institutes but I had no idea there was 57% that the government and other corporations invest. Just what are these corporations?

[@Memoudi]

Usually mostly pension funds. But government Chinese Government has stock positions its many of the companies. Germany has position in Lufthansa Airline, French in Alstom. But mostly its pension funds.

[@johnjacob4183]

what do you think of BTG ????? ready to zoooom

[@andrewiyer]

Question - when you say "overvalued" you possibly mean via some sort of metric - say P/E ratio. But, like in the 20s (where I don't know but assume PE ratios existed) - as more people pile in, inevitably the P/E ratio will deviate. P/E itself is arbitrary (unless I'm mistaken?), so it seems that this is incorrect market behaviour, based on a broken tool. Maybe really be P/E/M ratio, where "M" is the total money in the market itself.

[@ThePlainBagel]

I think I understand what you're saying, but keep in mind that BOTH price AND earnings are monetary, so money supply is already taken into account (it's a constant factor between the numerator and the denominator). Regarding population, you could also argue that while more people are piling into stocks, there are also more companies being created, so that may balance out the demand.

[@tomsim22]

This is happening right now

[@fdhadi]

thats to help rich people get out.

[@therapturedmichelle]

🤑

[@marslogics]

Pakistan is facing bear market from last 3 yeara. Also high debt to gdp ratio and other financial issue. Please make some video about it if you can.

[@bova57]

There internet there wtf

[@garrycal1681]

But now we are -20%😕

[@Bobatheman]

It just happened.. out of the blue.. ha

[@henrytheonetheonlyh4249]

No red lights ? Market doing good? WTF!? Buffet indicator hit a new high January, and another new high in August. Stupid people were suprised! Get ready! This week bounce rally is about to roll over again. So start working on your next "Oh what a surprise video"!

[@JATJAT330]

9 years? Cue Covid ...

[@owaisk6809]

Now the drop is 22% from its 2018 high.

[@mannyme2986]

Hi, sorry what index are you referring to?

[@splintercelloo7]

Off topic because of the ad. I have to ask when the Chinese take over toilet paper. Names like Super Mega Roll. Come'on, I like my food from Super House Fun III as much as the next person but my there's no reason for TP to go hard like a GME stonk.... or IS THERE? 🤔 🤔 🤔💭

[@alsaediomar]

Who’s here in 2021 from cciv and tesla

[@MattParlane]

Nitpick: "implies", not "infers". :)

[@ThePlainBagel]

Whoops, thanks for pointing out haha

[@sarashann]

Just expect when the next big drop occurs the doomsayers will crow that the end has arrived. Those of us with some cash parked on the sidelines will recognize a buying opportunity.