"The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a smooth or uninterrupted manner; they never have…..But, most assuredly, America’s best days lie ahead."

Warren Buffett

Interest rates continue to hover at historically low levels, consumer confidence is at the highest level in 6 years, inflation hasn’t reared its ugly head in quite some time, corporate profits continue to make all-time highs, the Federal deficit is actually declining, the dollar is increasing in price and energy prices have fallen to five year lows giving the consumer an additional boast in savings and spending.

Things almost sound too good to be true. So the correction must be around the corner sometime  right? That’s what happened in 2008/2009. It has to happen again right? Well, not necessarily. It could certainly happen — but as long as people continue think it’s going to happen, it probably won’t. Even if it did happen, an investor should be investing or adding to position during these market corrections. If you’re really worried about a stock market correction or crash, look at this figure below.

People who bet on America right before the Great Depression, eventually made their money back. In fact, those who put $1,000 in the S&P 500 at the height of the market (before the Great Depression), and put $1,000 in every year (a common scenario from 401(k)s, etc)  — they were back at breakeven within seven years. Although, it’s certainly not ideal, seven years is far from a lifetime. And you must remember, this was the longest period you would’ve had to wait. The Great Recession was two years, the Dotcom bubble was 5 years, and the 1970s recession was 3 years to breakeven.

As Adan Freedman, Chief Investment Officer of CircleBlack, wrote in a recent report, "these results suggest that for investors with a long time horizon, the downside of even a worst case scenario isn’t that dire."

The overall market is certainly not cheap by any stretch of the imagination. Is it prudent to be a little cautious than not? Yes, absolutely. But where is it written that stock markets must crash just because markets are fairly or overvalued. There is still a sense in the investment community that earnings will soften over the coming months and years. I argue, until they change their tone and become more bullish, I would not be surprised to see the market continue its assent (of course, I wouldn’t be surprised by a decline either).

Bottom Line: As humans we have a difficult time seeing beyond pain in the moment. We have a tendency to extrapolate current or past pain into the future without rational thought or explanation. Many call this recency bias. However, betting against the U.S. stock market or betting against capitalism and freedom has NEVER paid off long-term. And trying to time the market for an anticipated or perceived correction is very difficult to execute on a regular basis. Raise a little cash if you deem it necessary. However, it’s best to remain invested to let the power of compounding work for you. As Buffett says in his 50th anniversary letter, "The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a smooth or uninterrupted manner; they never have…..But, most assuredly, America’s best days lie ahead."