By Tom Bradley

We came back to work last week to a wall of red. Stock markets around the world were very weak. Canada’s S&P/TSX Composite Index was down 4.3%, which was good compared to the UK (-5%), the U.S. (-6%), Japan (-7%) and Germany (-8%). I could go on.

After a week like this, the question comes up: Is this just another checkback (an expression a former partner of mine used to describe a modest decline in a stock or the market), or is it the real deal this time? Is it a buying opportunity, or are we headed for a more severe market decline, perhaps 15-20%?

At this point, some context is useful.

During the seven years since the financial crisis, stock market returns have been outstanding, but not a year has passed without a meaningful pullback. Here is a list showing the annual market corrections of the S&P 500, the most-followed U.S. stock index, along with the full-year total returns (all in U.S. dollars).

As I remember, the summer of 2011 was a particularly jolting period, and this past summer was nothing to sneeze at.

Because we never know where the markets are going, at times like this we need to lean heavily on our investment plans, which take into account our long-term goals and are based on a Strategic Asset Mix (affectionately known as SAM in our shop). Sticking to the plan worked during the crisis (a diversified portfolio recovered quite quickly), in 2010, 2011, 2012, 2013, 2014 and last year.

The stock market could go down a lot this year, or it could test new highs. In my view, portfolios with long time horizons have to maintain their equity weightings. Over the long run, stocks have reliably beat bonds and cash, and it’s hard to see this relationship breaking down when interest rates are at near-zero levels.

As we said in a recent blog and our Outlook, the market volatility before and after year-end has not yet spurred our managers to make many changes, but it wouldn’t surprise me if they get more active in the weeks to come. Indeed, our global manager (Edinburgh Partners) bought two new stocks last week and sold one.

Whatever we call them - checkbacks, corrections, pullbacks, capitulations or market dips – these kinds of situations create opportunities for active managers like Steadyhand to enhance long-term returns. That’s what we’re paid to do.