What are Market Corrections?

Stock market corrections are an opportunity for investors to buy stocks while they’re on sale. But you can’t buy just any stocks.

Stock market corrections are a fact of life if you invest. And they can be pretty scary. More specifically, market corrections are when a major stock index suddenly plummets more than 10% from its most recent high.

Long-term investors, especially those with high-quality stocks in their portfolios, can usually wait out a correction. Even if you do some selling, the most important thing to remember is: Don’t Panic! It’s very possible you could miss out on major gains if you preemptively sell stocks whenever market corrections threaten.

For that matter, some very successful investors suggest that you hold your stocks during periods of market volatility so that you can reap the eventual rewards of increasing stock prices.

But let’s talk about buying during market corrections. When shareholders panic and sell, portfolio managers are forced to sell their cream-of-the-crop stocks based on the panicked behavior of uninformed investors. That’s why stock prices of good companies fall during market downturns.

That’s also why those stocks’ prices can rapidly rebound. Investment professionals know which stocks are excellent bargains after the market falls. They have their shopping lists ready, as you should! And you can look forward to buying shares of your favorite stocks after they’ve fallen. 

The caveat is that you can’t just buy any random stock and expect that stock to rise with the eventual rebound in the broader market. There’s an art to successfully buying low among stocks, and one key facet of that decision is sticking with stocks that fell, but didn’t plummet. In that light, look for stocks that fall 10%-15% during a stock market correction.

Remember, too, that if you seriously expect to own a stock for just a few days or weeks, you’re not an investor, you’re a gambler. Investors should have a several-year timeframe with no immediate need to spend their invested capital.

To learn more, download our free report, 10 Forever Stocks to Buy Now–and How to Find the Best Growth Stocks.