Market corrections are inevitable and healthy. Stock market corrections can be excellent opportunities to purchase common stocks at bargain levels. Veteran stock investors are not seeing anything in this turbulent market that is particularly unusual.
The fact that this market roller coaster is being pushed by a credit crunch instead of surging inflation or some other economic disaster doesn’t change the need to take a deep breath and sit tight.
Corrections, pullbacks, or whatever you want to call them are a natural part of the market cycle.
If you take a look at the past, there has never been a correction that has not proven to be a good buying opportunity. It has taken an average of less than three months for the market to make up those corrections, which is why most veterans plan to ride out the bumps.
When the market begins its return to normalcy, you don’t want to be on the sidelines. The secret to wealth has always been to “buy when there’s blood running in the street and sell when everyone is pounding at your door, clawing to own your equities.” You must have enough faith in yourself to buy when the rest of the market is selling.
Since it is not always clear exactly when the recovery officially begins except as a matter of historical record, most investors play it safe and stick with good, solid companies – even adding to their holdings if it seems prudent.
Remember, just because you follow the majority of people, doesn’t mean the majority of people aren’t wrong. That’s why 85% of investors aren’t driving a BMW or living in high rise areas. Base your decisions on analysis and value and you will, more often than not, come out ahead.
For investors with a long window, this is usually not a problem. However, if you are closing in on retirement or facing some other financial need, these market swells can be devastating.
A well-balanced portfolio with a proper asset allocation for your financial needs and risk tolerance is still the best defense against the daily market swings. Amid all of the uncertainty, there is one indisputable fact that reads equally well in either market direction: there has never been a correction/rally that has not succumbed to the next rally/correction…..