Just after we’ve witnessed a 1,000-point plunge in the Dow Jones Industrial Average Index (INDEXDJX: .DJI) yesterday, everyone woke up this morning to a further 880-point plunge.
To put things in perspective, the total two-day decline now stands at 1,885 points. That’s a drop of around 6.6% in total over two consecutive days.
If this may finally feel like a long-awaited correction, let me put out the numbers — the decline for the Dow from its recent peak is 8.4%, while for the broader Standard and Poor 500 Index (INDEXSP: .INX), the decline was less at 7.8%.
These still fall short of the 10% required to label this decline as a correction.
What’s going on?
Though the Covid-19 virus outbreak has often been cited as the main reason for this two-day plunge, remember that the media always needs to find some reason to explain sharp, unexplained drops.
The virus could be one of the causes of the decline as it continues to instil fear and dread in people.
Another possible reason could be that valuations in the USA were getting stretched. After all, the markets there have seen an almost uninterrupted 10-year bull market since the end of the Global Financial Crisis.
A pullback was to be expected at some point in time, though no one, of course, could have predicted the exact timing of any decline.
Should investors panic?
Plunges like these naturally make us nervous, as we suspect that something may be going wrong with our investments.
However, it is during times like these that we should remain calm and assess the long-term prospects of the businesses we invested in.
Selling out in a panic would do harm to our long-term wealth accumulation goals.
In fact, such drops should be welcome as a way for astute investors to increase their stakes in companies with favourable, long-term prospects.
So, our advice is to banish the fear and continue to soldier on. We should not be scared out of investing just because of such plunges.
Disclaimer: Royston Yang does not own any of the shares mentioned.