Be Bold When Others are Fearful | Market Corrections

Key Points

• A market correction is defined as a 10% or greater decline in value in the broad stock market. In market corrections, many investors are trying to pile out of names, further driving down value.
• When others are selling, it has historically been a great buying opportunity. It is almost like going to a fancy store where everything is on sale. There have been many corrections over time and rarely do they turn into a bear market. 
• Even so, given the long horizon of a younger investor, it makes sense to snap up shares with any excess cash when a correction comes knocking. 
• The biggest risk is not being invested when the market comes back- which it tends to do. We advise that corrections are used to pick up QUALITY businesses with strong models and good cash flow rather than going after the bottom feeders or speculative/hype names. 

A Quick Lesson from Buffet Himself

Even if you are someone who does not hold ample experience with investing, this phrase has most likely crossed your path. In case you are wondering, this is a famous quote from someone you have certainly heard of before by the name of Warren Buffet.  

His verbatim quote is actually, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”  Developing this mindset will serve you well as an investor when a market correction occurs.  

While others will be fearful by overselling their stock holdings or not putting their idle cash to work, you will understand how those actions represent a missed opportunity to purchase stock in quality companies at a discount.

What is a Market Correction?

First and foremost, what exactly is a market correction? A market correction is when there is a value decline of 10% or more in the market as a whole. It can also occur for a specific sector/industry or stock of an individual company.  

What ultimately causes these can be correlated to various factors such as poor economic data and earnings, political changes, or even just investors who claim the market is overvalued(stocks trading at prices too high to make sense). Thus here comes the herd mentality and everyone starts panic selling their stocks out of pure fear.

Stats to Help You Be BOLD and How Often Market Corrections Turn into Bear Markets

The truth is market corrections happen frequently and sure they can be frightening because who really wants to see all that red in their portfolio. Here are some stats to further cement why you should be bold when others are fearful though. 

There have been 28 market corrections as of November 2022 since World War II and rarely have they turned into bear markets according to Charles Schwab research. 

As a matter of fact only five market corrections have evolved into bear markets since World War II and if this does occur; stick to the long-term strategy and scoop up a couple more quality names trading at a discount. There are actually various definitions regarding what classifies a market correction or a bear market so numbers might be different across various sources.  

Remember, you can justify the intrinsic value vs the current dip in market value because companies with a strong business outlook will continue to perform well into future years.

Market corrections represent a great moment to finally put some trust in The Mighty S&P, or even create a Blue Chip Growth Portfolio, ETF Portfolio, or Dividend Growth Portfolio. 

Your Biggest Risk is To Sit on the SIDELINES

There is no technical indicator to predict when market corrections will occur but if there is one thing that has stood true time and time again it is that market corrections historically do not last long(4 months average). 

Volatility is a natural aspect of the market as millions buy and sell various stocks on a daily basis and sometimes there are periods where there is a little(alot) more selling than buying occurring. 

Those who were fearful and continued to sit on the sidelines or have a habit of trying to time the market will lose out in the long run. It turns out playing it carefully is not so careful after all because your dollar is better off being invested to protect against the inflation bandit moving forward into the future.

GenVest QuickTake

This does not mean you should hastily start buying without doing your research and not keep some idle cash ready to invest at times. It is just important for you to know you are already missing out if you elect to always keep your cash on the bench game after game because It Goes Up & Down…Volatility? Do Not Panic!

Do not wait for corrections as well to start investing, GenVest just hopes you see them as an opportunity to grab some great companies at a cheap price.