Don't trust your intuition during this market selloff

Yes the markets are down. Way down. Any stock price update is immediately stale. In the last week alone, most major markets are down around 10 percent. But maybe this is the perfect thing for your portfolio.

"Investors all too often to shoot themselves in the foot." -Burton Malkiel, author of "A Random Walk Down Wall Street"

"Without doubt, the most serious mistake individual investors make is trying to time the market," wrote Burton Malkiel. "Neither individual nor professional investors are able to make consistently accurate calls on the direction of market prices."

Malkiel, an economics professor at Princeton and the author of "A Random Walk Down Wall Street," is an expert on this. "In fact, I have never known anyone who knows anyone who has consistently made accurate directional bets on either equity or bond prices."

"Behavioral considerations cause investors all too often to shoot themselves in the foot" and that individuals who try to time the market "are much more likely to buy and sell at the worst times," Malkiel continued.

By trying to be too smart, most people don't outsmart the market, they just outsmart themselves. The stats are staggering. Looking at a research piece studying the years 1993-2013, Charles Ellis of Wealthfront wrote, "If an investor missed just 40 days, less than 1 percent of the 20-year time period, that 9.2 percent average annual gain would get converted into a loss of $854."

Think about how big of a drop that is—all the gains are completely wiped away from trying to time the market. Just the 10 best days in that 20-year period represent half the returns over the 20-year period.

The average U.S. equity mutual fund returned about 8.2 percent in the decade ending 2013, according to Morningstar. Since most people didn't remain fully invested during that period, however, the average dollar invested returned only about 6.5 percent.

Morningstar's vice president of research, John Rekenthaler, has pointed out, people actually tend to select good funds. "But their timing in moving among asset classes tends to stink. We saw massive inflows to intermediate-bond funds in 2012 just before one of their worst years in the past 40 years. It's sort of like the way we saw huge inflows to equity funds in 2000 or huge redemptions in 2009—too much rearview-mirror driving."

Fundamentally, Morningstar's advice comes down to this one line: "Investors sell after a bear market and buy after a bull market even though that's contrary to buying low and selling high."

"Despite all the corrections and bear investor would have seen a compounded return of 6.6%." -Andy Rachleff, Stanford Graduate School of Business

For the huge numbers of people who are investing for their retirement, either through a 401(k) or similar account, they should actually want the number to lower right now. It's just simple math. As long as people are still funding those accounts with fresh contributions taken from their paycheck, that means they are buying, not selling. You want to buy low, remember? Not high. A huge balance in one's account is a great visual, but that doesn't mean anything until you start making withdrawals.

In the meantime, your regular contributions each paycheck will be invested at a lower rate than they were a month ago. If you're not retiring for 10 years or more, then it really doesn't matter what today's price action does. All that matters is you keep investing at the same rate. The average cost of your entry price will be lower, and many years later, when you want to sell, you'll have taken advantage of the full growth in the markets.

According to Stanford faculty member Andy Rachleff, there have been 14 market corrections and 11 bear markets in the 50 years ending December 2014. And even through all that, staying invested was the right move.

"Despite all the corrections and bear markets over the past 50 years, an investor who started investing on Jan. 1, 1965, would have seen a compounded return of 6.6 percent over the ensuing 50 years. That's far in excess of the compounded inflation rate of 3.6 percent."

By the way, the market is still really high

Looking at the long-term chart above, you can see that the markets are actually still really really high. Even with this month's drops, the S&P 500 matches pricing levels it saw in the fourth quarter of 2014. Since the market bottomed in March 2009, the S&P 500 is still up over 190 percent. In a chart that runs from then, this recent drop actually barely makes a dent to the overall move.

With the S&P 500 hovering around 1,950 right now, that would reflect a monthly growth rate of 1.39 percent since the 2009 bottom. If the market were still at last week's prices—call it around 2,050, then the monthly growth rate would barely look any different—1.46 percent since 2009.