Saturday, October 24, 2015

Corrections are your friend

Despite the fear mongering in the media, corrections are normal and beneficial.

Recently the market had a correction. In fact, it still has not fully recovered. The media, as usual, reported this correction as a horror story. A number of reports said retirees who were heavily invested in the market lost millions. It was a disaster on a massive scale, according to these media fear mongers.

All not true, unless one was forced to liquidate at exactly the moment when the correction maxed out.

I was lucky. I had some cash on hand. Cash during a crash is nice. I bought some battered stocks and sat back and waited. I was confident I had bought some good stocks at fire sale prices. As you can see from the green line in the graph, my hunches were good and so far I am coming out on top.

I believe one should always keep a little cash on hand to take advantages of brief corrections.

Of course, not all corrections are short. Sometimes the market grows too fast, it becomes frothy, unstable, and tumbles from its greed-driven heights. If you bought a lot of stock during the feeding frenzy period, your pain may be a long time healing. But, even in this case the correction is your friend. It represents a return to sanity. A return to fair, even slightly conservative pricing of equities. Search out the good companies, the good stocks, and buy for the long term at these times. Over time the almost certain steady growth in value of your portfolio will reward you.

I have been in and out of the market all my life and in retrospect I would have done better if I had stayed the course and stayed fully invested at all times. I learned too late that corrections are opportunities not to be missed.

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