Benjamin Graham, the father of value investing and mentor to Warren Buffett, liked to refer to “Mr. Market” as having bipolar disorder. The stock market tends to behave much more like a human being than a financial instrument. The market can be euphoric one moment and despondent the next. John Keynes, the famous economist, described the market as often being driven by “animal spirits” which could frequently seem irrational.
Unfortunately for investors, when the market starts to act erratically, it can be quite stressful. It causes people to go through similar emotional swings. We feel great when the market is up and believe all is right with the world, and then the moment the market has a down day or two, to immediately thinking we are on the verge of economic collapse.
As of my writing this, the S&P 500 is officially in “correction” territory, which means a 10% pull back from the most recent high. During these times it is beneficial to readdress some very common investing myths that will start to creep into our thoughts and emotions, potentially pushing us to make a poor decision. Below are two of the most common I see: