When the markets are in a fast uptrend, investors have one nagging worry all the time: Market Correction... What if the markets correct? When will the markets correct? How much will the markets correct?
This worry comes from an utter distaste for pain. Most investors hate to see their stocks go down, even if it is likely to be just temporary.
We wrote back in January why investors must avoid this tendency to worry about short term market corrections. We highlighted why it is always more rewarding to focus on the long term fundamentals.
Again more recently when the markets were trending downwards, we reiterated our stand of focusing on the long term big picture.
And lo and behold, last week the markets closed on a strong note. During the three trading sessions from March 30 2015 to April 01 2015 (Markets were closed on Thursday and Friday on account of Mahavir Jayanti and Good Friday, respectively), the BSE-Sensex gained back over 800 points (+2.9%). It is noteworthy that the magnitude of recovery in the broader markets was even greater. During the same period, the BSE-Midcap and BSE-Smallcap indices gained 3.8% and 6.8% respectively.
Many investors who may have sold off their shares in anticipation of a major correction may have been caught off guard. With the markets starting the new financial year on a solid footing, some may be tempted to bite the bullet and buy back the shares at higher levels now.
Now, this is what we feel is an unhealthy way of investing. If you are going to constantly worry about a correction, you will often end up taking short-sighted decisions and miss big wealth creation opportunities.
The way the markets function is a bit strange. When most investors seem to be expecting a correction, the markets tend to trick them and go the other way. In the same way, a major market correction will most likely occur when many investors are convinced that there is no chance of a major correction. So if you are a long term investor, it is a futile exercise to predict every movement of the market. All you need to do is to buy solid companies at a reasonable price and stay invested for the long term.