Dealing with Market Corrections:

The DOs and the DON’Ts

Market Corrections: The Theory

Market Corrections: The theory

• In simple terms, theoretically or technically, corrections adjust equity prices to their actual value or ‘support levels’.

• Prices go down because of adverse reactions to expectations of news, actual news and investor profit taking

• Corrections and pullbacks are a natural part of the market cycle and can prove to be a genie in disguise

Some Dos and the Don’ts

Some Dos and Don’ts

• Learn to stay calm instead of panicking, especially when stock prices are falling

• Take time to review your portfolio. Ask yourself some questions – “Are all my investments in stocks or in equity mutual funds doing as well?”, “Does my equity portfolio comprise of only a few high-flying stocks?” Bad markets often offer a chance to rethink an existing investment strategy.

Some Dos and Don’ts

• Diversify your portfolio between various sectors to reduce your overall risk

• Start collecting a diverse group of high quality, dividend paying companies which are fundamentally sound, as they move lower in price

• Tune your present asset allocation to meet your long term goals and objectives

Some Dos and Don’ts

• One can’t tell when the rally will come or how long it will last. As the correction continues, buy more slowly as opposed to more quickly into quality stocks and establish new positions. Hope for a short and steep decline, but prepare for a long one

• Examine your holdings for opportunities to average down your cost per share

• Identify new buying opportunities using a consistent set of rules. Focus on value stocks since they offer good scope for capital appreciation in the long run, are less risky and better for your peace of mind

Remember:

Invest with a long term approach; you will realize that short term blips do not affect the

performance of good quality scrips over the long term!

Thank You!

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