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Dow Falls 213 Points as “Totally Natural” Selloff Picks Up Steam: Is It Time to Get Out?

Aaron Task
Editor in Chief
Daily Ticker

Recent weakness in stocks picked up steam Tuesday thanks to renewed worries about Europe and lack of optimism about the upcoming earnings season.

In recent trading, the Dow was down 1.65% and the S&P 500 was off by 1.71% while the CBOE Market Volatility Index (VIX) jumped more than 10%. This was the market's fifth-straight losing session, the longest streak since November, according to Bloomberg.

In addition to fear of a lackluster earnings season, global stocks fell as yields on Spanish and Italian debt rose sharply after Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation's banks may need more capital. The price of default insurance on Spanish debt hit a record high Tuesday while Spain's main stock index fell to its lowest level since March 2009.

Following a roughly 30% rally from the October lows, featuring parabolic gains for big-caps like Apple, Priceline.com, Sears Holdings, Bank of America and Netflix, a retreat here is not surprising, says Josh Brown, author of the The Reformed Broker blog and VP at Fusion Analytics.

"We've seen these tremors before all along the way. It's totally natural," he says. "In fact, a bit of a pullback here is not really a surprise to anyone."

Perhaps not surprising to pros like Brown, but what about the rest of us? For the most part, retail investors have been on the sidelines for much of the rally since the March 2009 lows. And those who've participated are probably now asking themselves: Is it time to get out?

But Brown believes that's the wrong way to look at things. In addition to managing accounts for wealthy clients, Brown is a prolific writer whose new book Backstage Wall Street is designed to help retail investors understand (as the subtitle declares) "who to trust, who to run from and how to maximize your investments."

Investors should never be thinking "'is it time to get all the way in or all the way out,'" he says. "The more important conversation is not what market might do but how will it effect me if it does this, that or the other thing and am I prepared in all those cases."

In other words, it's not about timing the market or beating the market but about managing risk, avoiding the traps many brokerages set for their clients and having a portfolio that's tailored for your specific needs, like retirement or paying for college.

"It's not that we don't want to avoid looses or see next turn coming," Brown says. "But the odds of anyone being able to do that consistently are very low."

Brown says most investors are brainwashed into thinking they need to "beat" the market. "That is anything but the average investors' job," he says. "Most of them will be OK...if we keep them out of trouble and earn a rate of return given the amount of risk we're willing to take."

More important that beating the market, is understanding how your performance is generated, "what's the methodology and is it repeatable," he says.

These issues rarely get a public hearing, much less on days when the market is going nuts. But these concepts deserve your attention and arguably more so on days like today.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com