Strategies To Cope With Stock Market Fluctuations
All a correction is, is the converse side of a rally, either big or small. In other words, a correction is a reverse movement, frequently downward, in the price of an individual stock or bond.
In theory, corrections regulate the share prices to their actual value or “support levels”. In fact, it’s much simpler than that. Stock prices go down because of trader reactions to anticipations of news, or the traders reactions to real news, and finally, traders profit taking.. Thus, if this correction escalates, and becomes substantially more severe, then new investment opportunities will become more readily obtainable.
Here’s a list of ten things to think about doing, or to avoid doing, during any corrections that might occur.
1. Your existing portfolio must be keyed in toward your long-term goals and monetary objectives. You must resist the impulse to decrease your portfolio just because you anticipate an additional decrease in share prices. Since then you would be attempting to time the market, which is practically impossible, as you well know. Any decisions affecting your portfolio ought to have nothing to do with Stock Market expectations.
2. Looking at previous corrections, there has never been a correction yet that has not turned out to be a buying opportunity. So this is point in time when you can start collecting a diverse group of high quality, dividend paying, companies when they have moved lower down in value.
3. As I have said on a number of occasions, there are no crystal balls, and absolutely no place for hindsight in an investment strategy. Buying too soon, in the right portfolio percentage, is almost as important to long-term investment achievement as selling ahead of time is, in the course of rallies.
4.Now to take a peek at the future.There is no way you can tell when a rally will come or how long it will last. All you can do is enjoy it while it lasts, as there are no guarantees as to how long it will last for.So, make hay while the sun shines.
5. As the correction continues, try to buy more gradually as opposed to more quickly. Hope for a short and sharp decline, but be ready for a long one just in case. Otherwise you may well run out of cash well before the new rally commences.
6.You should be out of cash whilst the market is still correcting. As long your cash flow continues uninterrupted, the change in market value is just a perceptual issue.
7.Examine your share holdings in your portfolio for opportunities to average down on cost per share or to increase earnings (on fixed income securities).
8. Recognize new buying opportunities using a reliable set of rules. (Hopefully you have a predetermined trading plan in place by now?)
9. Continually analyze your portfolio’s operation against your asset allocation and investment goals. Keep them clearly in mind.
10.Just so long as everything is down, there is nothing really to be troubled about. Downgraded or non performing portfolio holdings should not be thrown away during general or group specific weakness. Except of course, you don’t have the courage to get rid of them in the course of rallies.
Corrections will continually vary in depth and time, and both characteristics are undoubtedly visible only in hindsight. The brief and deep ones are nearly always the most lucrative. Whereas the long and sluggish ones are a lot more harder to cope with.
Constantly bear in mind that Share Market rallies need to be addressed somewhat quickly and decisively and with zero hindsight. Because amidst of all of the uncertainty, there is one incontestable fact, there has never been a correction or rally that has not sooner or later buckled to the next rally or correction that comes along.
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