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Investors Only - Welcome to the BIG Buy Low
By: Steve
Selengut
Every correction is the same, a normal downturn in one or more of the Markets where we invest. There has never been a
correction that has not proven to be an investment opportunity. You can be confident that the Federal Reserve, as hypnotized as it is with
keeping inflation under control, is not going to cause either a financial panic or a prolonged recession with tight money and high interest rate
policies. While everything is down in price, as it is now, there is little to worry about. When the going gets tough, the tough go shopping.
Every correction is different, the result of various economic and/or political circumstances that create the need for adjustments in the
financial markets. In this case, the overheated real estate market took a breather; an overdose of bad judgment among lending institutions
produced a major hangover; and a damn the torpedoes Stock Market, propelled by demand for speculative derivative securities (ETFs), and Hedge
Funds is finally falling back to more earthly levels.
The reality of corrections is one of the few certainties of the financial world, a reality that separates the men from the boys, if you will. If
you fixate on your portfolio Market Value during a correction, you will just give yourself a headache, or worse. None of the fundamental
qualities that made your securities "Investment Grade" just six months ago---when your Market Value was at an All Time High---have changed. Very
few (if any) interest payments or dividends have been cut. Only the prices have changed, to preserve the reality of things---and in both of our
markets. Welcome to the Big Buy Low!
Corrections are beautiful things, but having two of them going on at the same time is like a trip to Fantasy Land. Theoretically, even
technically I'm told, corrections adjust prices to their actual value or "support levels". In reality, it's much easier than that. Prices go down
because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former
"becauses" are more potent than ever before because there is more self-directed money out there than ever before. And therein lies the core of
correctional beauty! Mutual Fund unit holders rarely take profits but often take losses. Additionally, the new breed of Index Fund Speculators is
ready for a reality smack up alongside the head. Thus, new investment opportunities are abundant!
Here's a list of ten things to think about or to do during corrections:
1. First of all, don't beat yourself up by looking at your account Market Value. You don't live in a vacuum and you are not immune to market
price variations. That is why you should only buy the highest quality securities in the first place and stick with a well-defined Asset
Allocation plan. Look for ways to add to your portfolios---that's what the smart guys are doing.
2. Take a look at the past. There has never been a correction that has not proven to be a buying opportunity, in spite of the media hype that
this one is somehow special. When they are broad, fast, and deep, the rally that follows is normally broad, fast and steep. Get ready to
party---soon!?
3. The Smart Cash that was accumulating during the last rally, the one that ended abruptly in May, should be mostly back to work, and too soon is
normal. There are no crystal balls, and no place for hindsight in an investment strategy. Buying too soon, in the right portfolio percentage, is
nearly as important to long-term investment success as selling too soon is during rallies.
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