Stock Market Correction Decision Making Time: Ten Do's & Don'ts

A correction is a beautiful thing, simply the flip side of a rally, big or small. Theoretically, even technically I'm told, corrections adjust equity prices to their actual value or "support levels". In reality, it's much easier than that.

Prices go down because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former "becauses" are more potent than ever before because there is more self-directed money out there than ever before. And therein lies the core of correctional beauty!

Mutual fund unit and index ETF holders rarely take profits but often take fear driven losses. Thus, when any (minor for now) market hiccup grows into a major meltdown, new investment opportunities always become abundant. But how many of us will be prepared to take action during the entire downward cycle?

  • At the close of business December 20th, the S & P 500 was nearly 16% below the all-time high achieved just three months earlier and down roughly 8% for the year.
  • In the 20 years from December 23rd 1999, the S & P has gained roughly 3.5% per year (including all dividends). The Nasdaq has fared much worse, the DJIA slightly better.
  • There have been two major meltdowns during this period. Those whose portfolio content and structure allowed them to view these disruptions as investment opportunities have fared far better than those who did not.

Here's a list of ten things to think about doing, or to avoid doing, during corrections of any magnitude:

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My articles always describe aspects of an investment process I have been using since the 1970's, as described in my book, "The Brainwashing ...

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