“Correction in the stock market may be perceived as distressing by the many investors, traders, or speculators who think this is the ill-behavior of the market but for the diligent investor, value investor it is not that unfavorable”.
The fall in the prices dramatically after a so-called long rally is what the correction is known as. Is that so troubling or unfavorable for the market? Till the time market is heading up and making uptrend most of the investors perceive the market as healthy, analysts show the rosy pictures during this time, brokers are busy in giving manipulated signals to their clients to reap the more and more brokerage and for their own hidden benefit. Sample these statements about the market: ‘Sensex may hit 20000 soon, 23000 by March 2011’ (Ambit Cap), ‘Markets headed lower this year on dull economic data’ (Centrum Broking).
So what exactly is correction? Is it beautiful for the market or not? This is only for troubling the customer? Looking at these questions one by one, correction is what which brings the stocks near their actual valuation which were trading at premium or inflated P/E just because of the analysts views and the fantasy view of the situation by the brokers.
This is a beautiful thing in the same way as the uptrend in the market, it is just another face of the coin which we can’t ignore or hate at any cost. Because this is the thing after which stocks realizes their true value, and investors can invest at the right valuation. Prices go down because of these reasons during correction: investors are booking profit; speculators are reacting on the expectation of news. The latter is more important because the money invested by the speculators is out of market. It is where the core lies of the correction which makes it beautiful rather than distressing.
If we look at the past there was not even one instance, which has not proven to be a buying opportunity after the correction. Analyze the market after 1993 correction, after 2001 correction, and after 2008 correction. After the correction the diligent investors used to work on the market and pick some good stocks which are undervalued and which are expected to grow in the near term.
So, even when the correction is seen in the negative sense by many, it is very important for the market and for its stability in the long term.
