How To Survive And Thrive During A Market Correction

When the markets are rising, it is easy to be at peace with your portfolio, but the true test of any investor is when the markets are passing through a phase of correction. It takes discipline, grit and determination to stay invested when there is an air of uncertainty. Here are some tips that will not only allow you to survive a correction, but also come out of it as a winner.

Short term dips are an integral part of investing

In his 1977 letter to Berkshire Hathaway shareholders, the famous investor Warren Buffett wrote, "We ordinarily make no attempt to buy equities for anticipated favorable stock price behavior in the short term. In fact, if their business experience continues to satisfy us, we welcome lower market prices of stocks we own as an opportunity to acquire even more of a good thing at a better price." Successful investors understand that market corrections are usually short term in nature and eventually, the true value of a fundamentally strong stock will emerge. Every long term investor has been through market dips, but the intelligent investor has held on or consolidated during these dips to eventually achieve supernormal profits. The key to successful investing is holding for the long term. Again to quote Warren Buffett, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

Buy and sell rationally

Panic selling or impulsive buying are sure ways to losses. Every transaction must be made with sufficient study and analysis. A good investment advisor will help select stocks of companies which have a sound business model, run by honest and competent management and are part of industry groups that are on an uptrend. The investment advisor will also provide you with an estimated holding period and target sell price, which are based on extensive study and research. Every purchase or sale your investment advisor recommends will be based on quantitative and qualitative research.

Review but not obsessively

Periodically reviewing your portfolio is a must. In fact, your investment advisor will monitor your portfolio on a daily basis. However, getting fearful of dips in daily prices must be avoided. Let your investment advisor do the monitoring. You don’t need to obsessively check your portfolio every day. A quarterly/half yearly review is sufficient. After all, you need to give the company time to grow its business, which, in turn, will reflect in the stock’s market price.

Manage your emotions

The key to successful investing is managing your emotions. Once you have invested in stocks that are fundamentally sound and have the potential to reap attractive returns over the investment tenure, stay invested irrespective of the short term moves.

Staying invested may be easier said than done when the markets are undergoing a correction, but it is a necessity for long-term wealth creation. Patience will pay rich dividends to those investors who learn to weather the storm.