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The markets are once again flirting with all-time highs and that's got many investors wondering if a 1999-style crash is in the works… especially when it comes to the tech-laden Nasdaq. They can't help but shake the seemingly obvious parallels.
In reality, today's markets are a far cry from what we saw back then, and that means you've got to play them differently if you want to profit.
Three Reasons Not to Panic Like It's 1999
The markets have been making new highs so regularly that many investors are losing perspective.
They're not quite getting "sick of winning," to paraphrase one of President Trump's favorite campaign promises, but it appears that they're losing sight of reality.
If you're one of millions of investors who are thinking this way, you're not alone. In fact, it's perfectly normal because of something called "recency bias."
That's a term meaning that your memory is picking up on cues that are based on past experience, but which ultimately lead to incorrect and very costly "conclusions" – the bulk of which are wrong.
I've written a lot about this over the years, so I won't repeat that today, but will instead encourage you to check out these articles on why "perma-bears" bears sound so smart and why pessimists never make money.
"But, Keith…" I can hear you thinking… "The possibility of a correction is very real."
Yes, it is.
That's nothing new.
In fact, the markets have experienced at least one correction a year on average every year since 1900, according to Deutsche Bank. Practically speaking, that means you will live through one stock market correction for every birthday you celebrate.
That sounds scary, but there's a really important takeaway, and it's one that 99% of all investors miss.
Less than 20% of all stock market corrections turn into a bear market.
Moreover, the average correction lasts between 54-87 days, which means they're often over right about the time everybody panics and bails out… usually just before the markets rebound.
That was the case in 2003 and again in March 2009. You can see it quite clearly in the following chart from the Investment Company Institute covering net new equity flows from 1998 to 2013.
At first glance, this seems entirely justified.
Then, as now, there was a speculative blow-off in a world dominated by central bank manipulation, a huge "strike-it-rich" mentality from a string of hot IPOs based on nothing more than vaporware and massive wealth inequality. Fears of a Chinese slowdown ran rampant in the headlines, and there were two gut-wrenching sell-offs, panicking policymakers who immediately "eased" rates instead of letting the markets sort things out on their own.
Yet if you look deeper, there are three reasons today's market conditions couldn't be more dif…
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.