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, its 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 holders rarely take profits but often take losses. Opportunities abound!
Heres a list of ten things to do and/or to think about doing during corrections of any magnitude:
1. Your present Asset Allocation should have been tuned in to your goals and objectives. Resist the urge to decrease your Equity allocation because you expect a further fall in stock prices. That would be an attempt to time the market, which is (rather obviously) impossible. Proper Asset Allocation has nothing to do with market expectations.
2. Take a look at the past. There has never been a...
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