10 Lessons Learned in the Selloff

I think of "support" as the place on a chart where buyers have, in the past, reliably made purchases. A shift in sentiment can often be enough to keep buyers' wallets in their pockets. During the recent down leg, support lines vanished time and again. During the 2000 crash, the market sliced through support like a knife through hot butter.

Remember, support and resistance lines were made to be broken. If they weren't, trends would last forever, and ranges would be permanent. Trends don't, and ranges aren't. Remember that.

5) Investors Have Short Memories

The favorite quote of Street Insight's Doug Kass comes from Benjamin D'Israeli: "What we have learned from history is that we haven't learned from history."

Has any statement been more true than that lately? People have been bugging out over -- what? A 5% pullback? The S&P 500 has barely given up half of a 10% correction.

Apparently, investors haven't learned their market history. Those 10% corrections during the last secular bull market were more common than many people realize. In every year from 1996 to 2000, the S&P 500 suffered a 10% selloff. (Don't take my word for it, go check out a long-term chart.) That's five consecutive years with at least one 10% whack (1999 actually had two of 'em).

We haven't had a 10% correction on the Dow Jones Industrial Average or S&P 500 since the first quarter of 2003; in other words, we're long overdue.

And consider this, during the last secular bear market -- the 16-year period between 1966-1982 -- there were five selloffs ranging between 24% and 45%.

These big "unusual" moves are far more ordinary than most people realize. What is perceived as a 100-year flood is actually a relatively common occurrence. In the grand scheme of things, this has been a very minor selloff -- at least so far.