Image Source:Stencil

Stock market correction can be defined as downward movement or fall of at least 10% of a stock/bond /commodity or market index from a recent high. Market corrections are very normal and part of market cycle. It is a negative movement but does not necessarily mean it is bad for investors. Rather investor should treat it as an opportunity for following reasons:

– To assess risk ability:

Find out if you are really comfortable with this market down trend or not. If market corrections making you panic to sell your stocks, then take it as a chance to access your risk tolerance level. This does not mean to sell off your holding but to learn that this trend is for short term and can lead strong bull market condition. If you are not a short term trader then market correction should not be an issue.

-Add potentially good stocks at bargain price:

Market correction is a perfect time to add quality and good stocks as prices will reverse back to sensible level. It’s also possible that despite of correction a particular stock can remain strong and stable. Grab this opportunity to add stocks at bargain prices.

-To follow unbeaten path:

Many investors gets panic and sell off their stocks by following the crowd during correction. But this mistake of an average stock investor turns into an opportunity for value investor. Be a value investor and avoid the beaten path.

Image Source:Stencil

-Market Corrections are for short term:

Stock market corrections are often and inevitable part of market cycle. Market moves in two directions; up & down and when this direction will change is unpredictable. Market corrections are rarely last long and therefore do not get upset and keep a long term view.

– Market corrections is not Market Crash-:

There is difference between market correction and market crash. Market correction is a measurement in percentage of decline from recent high while crash is decline of 10% or more irrespective of bullish market. Market crash can lead to bear market or even recession sometime.

–Evaluate & rebalance portfolio:

During bull market it is possible that prices of stocks you are holding gets overvalued which can make your portfolio loose its right balance or allocation. Market correction is like a reminder to evaluate and aligned your portfolio as per your goal and risk tolerance level.

What Warren Buffet said about market correction is true: – “A market downturn doesn’t bother us. For us and our long term investors, it is an opportunity to increase our ownership of great companies with great management at good prices. Only for short term investors & market timers is a correction not an opportunity.”

References: Investopedia, ustoday, money.usnews