3 Quick Tips On How To Make The Most of The Current Stock Market Correction
Singapore’s Straits Times Index (^STI) is down over 11% year-to-date.
Compared to its recent high, the STI is fallen by even more, down by over 16%. By definition, we are in well into market correction territory. It’s not fun, of course, to see our own stock portfolios in the red but a decline in stock prices can provide the opportunity for investors to pick up stocks on a cheap.
In this context, I would like to provide three quick tips for the bargain-hunting investors out there.
1. Buy because you want to own more of the business, not because the stock price has fallen
It is easy to be attracted by falling stock prices.
But lower stock prices alone should not be an excuse to buy any stock out there. That’s because stocks that have fallen a lot do not necessarily make the best investments. That is especially true if the stocks you buy do not represent what you need to achieve your own financial goals.
As Foolish investors, we want to be discerning even when there are bargains in the stock market. The best stocks to buy are the ones that help you achieve your financial goals.
2. You’re not going to get the lowest stock price
As markets decline, there are some investors who end up waiting too long before acting. The fear, whether they would like to admit or not, is that stock prices might fall further.
It is possible, of course, that share prices will continue to fall. But guessing the exact bottom is a (small f) fool’s errand. As investors, we should pick the stock price that we are happy to hold for the long haul and not worry too much about whether the figure we chose was the absolute best stock price that we could have gotten.
If you are struggling in deciding when to put money in, consider buying in thirds.
3. It’s a marathon, not a sprint. Pace yourself
A market correction is not an invitation for you to pour all of your money into the stock market in the hope of making a quick buck.
A 16% decline feels like a sizable decline but in reality, such declines are fairly common in the Singapore stock market. Between 1993 and 2016, a period of 24 years, Singapore’s STI has fallen 10% or more in nine out of every ten years.
Source: S&P Global Market Intelligence
In fact, the STI has declined 20% or more (from peak-to-trough) two year out of every five years and fallen 30% or more in one out of every five. Bear in mind that larger market declines are always possible, so pace yourself in adding money to the stock market. Don’t be afraid to pick up bargain-priced stocks that fit your goals, but don’t be overzealous in bargain hunting too.
As always, only invest money that you do not need for the next three to five years. Good luck.