If you track the market using Investors Business Daily’s market measurements, today the market entered into a correction. Their measurement doesn’t look at the general rule of thumb of a correction being around a 10% decline in the broader market, but we can all agree that the market hasn’t been so hot for the last few weeks. So, you’re an investor; what do you do?
A number of people are going to go into a panic. It happens and it’s actually probably a pretty natural reaction. Are you going to do that? I’d hope not. It’s not that selling in the face of a market correction is a bad thing. It actually can be quite beneficial, if you have some type of rule and/or strategy behind what you’re doing. Just dumping your entire basket of stocks because of some inhospitable weather the market is probably not the best idea.
If you’ve recently entered into a position on the basis of the stock breaking out into new territory, you might want to think twice about your position. Was this a short-term trade? If yes, then it might be a reasonable move to get out of the stock. It’s a calculated risk, but knowing the market is trending down and your investment thesis was a short-term upward swing has to lead you to see that your view is in opposition to the current trend.
If you’re in say a dividend yielding stock that’s certainly a long-term hold, then why let a correction shake you out of your position? It’s not a matter of weeks or a few months that will define your investment, but a matter of years. Keep that perspective if you’re hit with a few dicey days.
Above all else, don’t let sudden fear overwhelm you and bring you to do something not so wise. Think about why you’re in a position. If you’re in it for a short-term play that was built on a hot market running up in price, then re-evaluate based on thing change in market climate. Whatever the base assumptions were and how they mesh with the situation that is should lead your decision making process. Don’t let the fear mongers that are everywhere drive you into selling because the world is on the edge of economically collapsing or some other doom and gloom scenario.