• Last Call! All Hedgeye Products → Up To 65% Off

    This offer expires Sunday at midnight. Get your portfolio proactively prepared. This is a limited-time offer to the sharpest investing research money can buy.

The guest commentary below was written by Jesse Felder of The Felder Report. 

Putting The Fastest Correction In History Into Context - 01.31.2018 sudden change cartoon  3

“Risk happens fast,” as they say and it has never happened faster than it did last week. It took just six days for the S&P 500 to fall 10% from a record high, the fastest “correction” in history. Some are even calling it a “crash” and comparing it to the one we saw just over a decade ago. But it’s important to put the recent action into some sort of context. 

For long-term investors, it’s probably most important to understand that the decline we saw last week has in no way made the broad stock market look cheap, as some might suggest.

Putting The Fastest Correction In History Into Context - Screen Shot 2020 03 04 at 11.47.25 AM

To explain what I call “The Buffett Yardstick” in the chart above, I’ll refer you to what the man himself wrote in 2001, “The chart shows the market value of all publicly traded securities as a percentage of the country’s business–that is, as a percentage of GNP. The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment.”

And according to this measure stocks are still just as expensive as they were in 2000 at the peak of the dotcom mania prior to a 50% decline in the major indexes and they are 20% more expensive than they were in 2007 prior to a 57% decline.

So it’s hard to argue there is much value in the broad indexes at all even after the steep correction we saw last week. What’s more, downside risk is still very elevated.


This is a Hedgeye Guest Contributor piece written by Jesse Felder and reposted from The Felder Report blog. Felder has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.