Despite the shock it caused to many investors, most finance industry insiders were not surprised by the recent correction in the stock market. The US market went 47 months without a correction—a decline of at least 10%. The historic average was 18 months. This changed on August 24, 2015 when the Dow Jones Industrial average dropped 530.94 points—the biggest drop since August 8, 2011. Things appeared even worse on September 1, 2015 with a drop of 469.98 points.
Professionals suggest riding out the storm, since the Dow generally recovers from market turmoil. While the reaction of many investors is to pull back and sell before things get even worse, now is not the time to act hastily. Investors who are investing for the long-term know that funds are full-blown portfolios, which behave differently than individual stocks.
Advice for individual investors includes taking stock of the recent market slide to review their portfolio’s diversified exposure to stocks. This might be the time to trim back if the portfolio has a high percentage of stocks. Doing so will generate cash and provide the capital to buy bargain stocks.
In fact, this can be a good time to buy, since many quality stocks are currently undervalued. Technology stocks in particular tumbled dramatically during the recent turn of events. One of Bob Farrell’s classic 10 Market Rules to Remember is to “sell before you have to, and buy when others are selling.”
Turmoil in China’s stock market spooked investors, and those markets have remained volatile. However, reports on the US economy bode well. A recent report indicated that second-quarter economic growth in the US was much stronger than experts initially predicted. In addition, three major automakers in the US beat their sales estimates for August, and construction spending increased 0.7% in July.