The psychology surrounding stock market declines and recoveries is fascinating.

Anytime markets retreat even a little bit, the noise surrounding the event begins to swell.

Given how frequently markets jink in turn,

you might expect people to be used to the occasional plunge by now.

Alas, that is simply not the way human emotions and memory works.

As of recently, the Standard and Core 500 was mere points away from an all-time high.

This was set in September of 2018.

Lest we forget, a 20% drop from those highs

and a 25% move brought us very close to that peak.

Neither the angst of the decline nor the bliss of the recovery are in any sense of the word rational.

As we close in on that prior mark, it might be helpful to consider some details on what

pullbacks corrections and bare markets actually look like and why we as a species deal with them so

poorly.

Let's start with an important caveat.

The terms we all use, drawdowns, corrections, pullbacks, retracements, recoveries,

these are just made-up words without any formal definitions.

Pundets and traders and media pretty much started using these terms

because it was very helpful to try and explain things that were very hard to explain.

The convention is that a 5% move down is a pullback, a 10 percent drop is a correction, and 20 percent is a

bare market. These categories have no real meaning or statistical significance.

Let's look at that 5%.

On average, markets fall 5% a couple of times each year.

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