Updated: Mar 2
As of 27/02/2020 we enter a correction in the stock market. A correction of the stock market is where the market as a whole drops 10% or more. When the market drops over 20% its officially a bear market. With the S&P 500 hitting an all time high on the 19th of February at 3,386.15 the index would have to drop bellow 3,047.54 to be a correction, which at the time of writing the S&P 500 is sitting at 3,049.69. The S&P 500 hit 3,008.69 at 10:35 today.
The six day drop has marked its fastest slide into correction territory from the recent peak since the two day drop on November 5-6 2008, during the depth of the financial crisis.
The drive of the stock market falling into correction territory is the fact that the Corona virus named COVID-19, people are selling out of stocks in a panic. With the virus being a threat to many countries, the virus spreads at some pace creating a panic. This virus is going to effect supply chains for many businesses so I expect that the next quarter results will be majorly effected, but this is what to expect.
But with earning expected to be hit, is it worth selling your shares? I won't be selling my shares, especially losing shares. The reason why I won't be selling any of my shares is because I believe in these companies and have many years of investing ahead of me. If you research companies, they have a good balance sheet and you believe in them, then why would a correction change your opinion? If anything a correction allows you to buy the companies and shares you want at a cheaper price.
What you have to realise is that the S&P 500 has averaged a correction of 10% every two years. A correction is a natural and healthy cycle of the stock market.
What about a bear market? With a bear market having a much steeper decline of 20% or more, there have only been four bear markets which grew from a correction since 1980.
What happens if my stocks are down and loosing? Well if they are at a loss at the current the worse thing to do is to sell at a loss and make what's called a realised loss. When you are looking at your invest account and see a + or - next to your stock these are simply what the stock market is saying your stocks are worth. It is down to you to decide what you think the value of the stocks which you hold are. The price of your shares can fluctuate wildly from day to day. You only make a realised gain or loss when you agree with Mr market to sell them. Why would you sell at a loss when Mr markets offer can change?
If you believe in the stocks and companies in your portfolio, a better thing to do at this time is to have money on the side, ready and waiting. With this available cash you will be able to average down on the stocks, getting them at a cheaper price and if they are dividend paying stock, at a higher dividend yield.
Now isn't the time to be scared but excited, excited as you are able to watch the market and pick up stocks cheaper than they were earlier in the month. These are opportunities presented to you by Mr market. Being patient is the name of the game, long term is the goal and for those who wait and don't panic will be rewarded in the long run.