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Correction Is Beautiful - Even At Stock Markets

Posted on | September 27, 2012 | Comments Off

Correction, the term itself gives a tinge of negative feeling or may appear a little criticizing. However, great notions say that corrections are beautiful. It is simply the flip side of a rally, big or small.

Considering theoretical as well as technical explanations, a correction adjusts equity prices to their actual values or support levels. In reality if you look, it is pretty much easier than that.

Why stock market prices go down?

Because of speculators expectations of news, speculators reaction to actual news and investors profit taking. Well, reasons related to spectators view are more potent, as they are self-directed towards money. And herein lies the correctional beauty.

Take for example, Mutual Fund unit holders, who rarely take profits home. Moreover, a new breed of Index Fund Speculators over-reacts to any kind of news because that’s what speculator is expected to do. Thus, in stock market little hiccups mean something serious is going to ensue, and expectations of new investment opportunities.

Below you will get a list of ten things to work upon, or avoid during corrections of any magnitude:

  1. Present asset location that you have should be tuned into your long-term goals and objectives to get more flexibility. Resist the decrease in equity allocation because you are going to have a further fall in the stock price. This is an attempt to time the market, which is no doubt impossible. The asset allocation decision should have nothing to do with the stock market and their expectations.
  2. Glance at the past, you will find that there has never been a correction that has not been able to prove to be a buying opportunity, so it’s time that you should start collecting a diverse group of high quality dividend paying, NYSE companies as they move in lower price. You can start shopping at 20% below the52-week watermark.
  3. Do not store that extra cash that you have accumulated during the last rally, and don’t try to look back or else you will get agitated soon. There are no crystal balls, and no place for hindsight in an investment strategy. Buying too early in the right folio percentage is important for long-term success, as selling too soon is during rallies.
  4. Take a good look at the future. Well, you cannot tell that when the rally will be resuming back or how long will it last. If you are going to buy quality equities now you will be able to love the rally even more than the last time. Smiles are sure to broaden on your face with each new gain, especially when most wall streeters are still scratching their heads.
  5. If the correction continues, buy more slowly as opposed to more quickly and established new positions incompletely. You can hope for a short decline, but prevention is better than cure, so do prepare yourself for a large decline. There’s more to shop at the gap than meets the eye. If you are able to do it properly, then you will run out of cash well before the new rally begins.
  6. You may be out of cash when your market is still correcting, it gets less scary each time. As long as your cash flow is able to continue unabated, the change in the market value is hardly a perceptual issue.
  7. Take a note that your working capital is growing, despite of the fallen prices and do examine your holdings for opportunities to average down on cost per share or to increase yield. Examine both fundamental and price, learn hard on your experience and do not stress the issue.
  8. Try to identify the new buying opportunity using a set of rules, rally or correction. See with which of the two you are dealing with in spite of what the Wall Street photographs may show you. Focus on Investment Grade Value Stocks:  it is easier, less risky and better for your financial state. Just think where you would have been, if you heeded this advice a little earlier.
  9. Examine your portfolio’s performance: asset location, investment objectives, all in terms of market and interest rate cycles as opposed to calendar quarters and years. Along with the use of working capital because, it considers your personal asset location. There is no single index number to use for comparison with a properly designed portfolio.
  10. Downgraded portfolio holding should not be discarded during general or group specific weakness. Unless, you do not have the courage to get rid of them during rallies.

The correction does vary in depth and duration and both are clearly visible to you. The short and deep ones are most lovable and the long and slow ones are difficult to deal with. Better not over think or over cook, Stock Market realities need to be dealt quickly, decisively and with zero hindsight.

Author’s Bio: Jason Hopkins, an outreach expert, is closely associated with renowned contact center services and solutions. He tells how these offshore outsourcing companies are able to give an advantage of Verizon answering service and lead generation to gain potential returns.