A Month of Extreme Volatility; Be Thankful for Stock Market Corrections
Yes, I know it feels bad. Nobody likes to see their portfolios drop in value, especially at a rapid pace. Unfortunately, that is the nature of the beast – investing has risks, sometimes big risks. And panic selling is not the answer. You could blame China’s slowing economy, the U.S.’s over-valued stocks, Europe’s stagnant growth, the Federal Reserve’s mixed messages on rate hikes, or the moon’s phases (some investors actually do). They all have some effect on the actions of short-term traders who command the daily, weekly, and even monthly volatility. Long-term investors like me (and you?) actually welcome these “corrections,” because we have learned to manage our risks and therefore have cash ready to be deployed to acquire great stocks of great companies at cheaper prices.
If you are employing the sound and proven dollar-cost averaging (DCA) investment techniques, now is the time when you will acquire more shares for the same amount of money invested due to lower prices. This is a key principle of DCA, especially when you use it with regular monthly contributions to your retirement accounts (IRA, 401k, 403b, etc.).
While the S&P 500 Index reached a high of 2135 on May 20 and hit a recent low of 1868 on August 25, and despite some recent rebounds, it is possible that it may correct further to 1820. An S&P 500 Index of 1820 would constitute a 15% correction from the high of 2135. And this level may set the stage for a rally into early 2016. So, don’t panic… View a “correction” of 10- 15% as a great buying opportunity to employ your cash.
Disney (DIS) – A Super Buy
In fact, buy Disney (if possible, under $100/share), which has corrected 21% from its recent high of $126/share due to some concerns about its cable carrier arrangements. Disney’s fundamentals are strong and will be stronger with many new revenue and profit generating sources, including the highly anticipated upcoming films of its Star Wars franchise. I will share more about Disney in future blogs, so register for a free subscription in the green box here to get free alerts when I post future blogs.