What’s known is that experts will wait for market correction, as it’s a cycle of the financial markets and economy. The market becomes volatile by either bad news or good news, such as an election. What the seasoned professional will do is wait for them, then pounce once it happens.
During any correction, what investors need to avoid is the destructive inertia which results from attempting to determine how low the market can go, how long it will last. When to go long or short. Investors who decides to participate will invariably experience more predicable results, higher or lower values during the next advance.
Corrections are caused by shocks in the economy, this regardless if the news is good or bad, when a major event occurs. What investors will do is over-analyze when prices are weak, while lose common sense when prices skyrocket.
Panic In The Machine
What the brain loves is repetition. What the experts preach, this in the face of every market correction, is that most won’t anticipate these corrections, this since they don’t understand how the financial market fluctuates.
What it seems like however, is that just a handful of financial professionals, wants the investor to see it this way.
What institutional Wall Street loves instead, is when individual investors panic, this in the face of uncertainty. This market uncertainty is the playing field for investors, where hindsight isn’t welcome.
A closer examination to the news that’s fit to print, or isn’t printed enough, should be making the investor more confident about the future, this regardless of what their politics may be.
Dealing With Market Corrections
• Look at its past history. There’s never been a correction which hasn’t been proven to be a buying opportunity, so begin collecting a diverse group of high quality investment opportunities which are currently undervalued. One’s which are 20% below their 52-week high water mark
• Don’t hoard the profits that you’ve accumulated during that last rally, and never look back and allow yourself to get agitated because you might buy some too soon. There are no accurate crystal balls, no time for hindsight during investment strategies. Buying too soon, is just as important to long-term investment success, as selling too soon
• Look into the future. You can’t tell when the next rally will come or how long it will last. If you are buying equities, you’ll love the rally, this more than anticipated, as you take yet another round of profits. Confidence will broaden with each realized gain, this especially when those on Wall Street are wondering and scratching’ their heads
• As or if the market correction continues, buy more slowly instead of quickly, while establishing hope there’s a short or steep decline, while preparing for a long one. There’s a lot more to “Shop The Gap” than meets the eye, while one runs out of cash before the next rally begins
• Your understanding and use of the “Smart Cash” concept has is proven the wisdom of The Investor’s Creed, which is a well known concept. What you should be is out of cash while the market is still correcting itself, while it gets more volatile. If your cash flow remains unabated, the change in market value is just a perceptual issue
• Note that your Working Capital should still be growing, this in spite of falling prices. Examine your holdings regarding opportunities to average down, or to increase yield, this especially on fixed income securities. Examine both price and fundamentals. Lean hard on your previous experience, never force the issue
• Identify new buying opportunities, this by using a consistent set of rules, which is rally or correction. This way, you’ll always know which of the two that you’re dealing with, this in spite of what the market propaganda mill spits out
• Make sure you focus on value stocks as it’s just easier, along with it being less risky, and much better for your peace of mind. Just imagine where you’d be today, if you had known or heeded this advice years ago
• Examine the performance of your portfolio, this with your investment and asset allocation objectives clearly in focus; this in terms of market along with interest rate cycles, as opposed to calendar quarters or years
• Only use this with the Working Capital Model, this because what it allows for, is your personal asset allocation to grow. Keep in mind that there’s no single index number that you’re able to use for comparison purposes, this along with a properly designed value portfolio
• As long as everything is down, there’s nothing to worry about. Downgraded or lazy portfolio holdings shouldn’t be discarded, this during general or group specific weakness, this unless you don’t have the foresight or the courage to get rid of them during rallies
Dealing With Market Corrections
Market corrections, this of all types, will do is vary in depth and duration, and both of these characteristics are clearly visible, this only however in institutional grade rear view mirrors.
The short and deep ones are the most favorable, while the long and slow are a lot more difficult to deal with. Since most of the recent corrections have been short, it becomes difficult to take advantage of them.
So if there’s a tendency to over think the environment, or to over analyze the research, what you’ll miss is the party. Unlike other things in life, the realities of the financial markets need to be dealt with precisely, quickly, decisively, with zero hindsight.
Since there is a lot of uncertainty, there’s one indisputable fact which reads equally well, this in either market direction. Know that there’s never been a correction or a rally, that hasn’t succumbed to the next rally or correction…