Freedom Facts

Warren Buffett said, “The stock market is a device for transferring money from the impatient to the patient." In Tony Robbins recent book, “Unshakeable,” he walks through seven wealth building facts that explain why this is true.  Once you master the principles of wealth building, you will be free from the emotional trap that the impatient fall into.  Here are the seven freedom facts that we all need to know to create wealth in the stock market:

  1. Since the year 1900, the stock market has experienced a “Correction” on average once per year.  A correction is a pullback of at least 10%.  They average around 54 days with the average drop being around 14%.
  2. Less than 20% of all “Corrections” become a “Crash.”  A crash is a pullback of at least 20%. 
  3. No one can consistently predict the market rising or falling.  Many people are right on occasion but no one in history has been able to predict specific market moves consistently.  Remember that even a broken watch is right twice a day.
  4. With many ups and downs the stock market will rise over time. 
  5. Historically bear markets happen every 3 to 5 years.  In the last 35 years, there have been 7 bear markets with the average drop being 33%.  On average, they last about a year.  The market typically recovers very quickly so if you panic and move to cash during a correction you will miss the rally.
  6. Bear markets become bull markets without exception.  Therefore, Warren Buffet likes to be greedy when others are fearful.  He knows how quickly things will turn.  Consumer pessimism is the perfect time to invest.
  7. You will never time it just right, so the greatest danger is being out of the market.  Over 20 years if you missed the top 30 days your returns are reduced to almost zero.  The top 10 trading days immediately followed the top 10 worst trading days.  Being out of the market is riskier than a correction.

When you look at the freedom facts, you realize that corrections and crashes are nothing to fear.  In fact, corrections and crashes are just another season that we should look forward to.  Although scary at times, winter is exciting because it is always followed by spring.  If you learn the principles of wealth building and remove the emotional tendencies, you can be on Warren Buffet’s side of the trade as he patiently waits for everything to go on sale.


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