3 Simple Steps to Make a Fortune When Market Corrections Come | Smart Change: Personal Finance

(Keith Speights)

Winston Churchill once said, “Never let a good crisis go to waste.” I’m not sure the “good crisis” is the best way to describe the current stock market environment, but Churchill’s idea is definitely applicable.

Prospective investors know that the best time to lay the groundwork for making a lot of money in the long run is during a recession. Here are three easy steps to make a fortune when market corrections arrive.

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1. Don’t be scared

The most important step to take to make money during a stock market correction is not to panic. Some people are frightened to see their wallet balances sink and want to sell all their stock. It is almost always a big mistake.

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Sure, it’s one thing to say, “Don’t be scared,” but putting those words into reality is another story. I’ve found three things that help me avoid pressing the panic button when my actions drop.

First, I try not to look at the stock prices I own all too often. The old saying that “ignorance is happiness” has some merit.

Of course, when the major market indices are falling, I know that most of my stocks are also falling. However, I’m not so anxious when I’m not constantly lifting my wallet to see what’s underneath.

On a related note, the second thing that helps me is to remember why I bought the stocks first. Some investors have long recommended keeping a diary in which to write down the underlying premises for buying a stock. I haven’t always done that, but it’s a good idea. If the reasons for buying a particular stock are intact, do not sell and do not worry about price fluctuations.

Third, I like to look at a long – term chart of the S&P 500 index. Why? The S&P has had many falls over the years, but has always recovered. And it offers great long-term returns.

2. Buy the shares of strong companies

You’ve probably heard Warren Buffett’s famous statement of “being greedy when others are scared and fearful when others are greedy” more often than you can count. However, just because it’s become a cliché doesn’t mean it’s not great advice.

Buffett also said something else that is just as important to know. In his most recent letter to Berkshire Hathaway shareholders, wrote that he and his business partner Charlie Munger “are not stock selectors; we are selected from companies.”

I suggest combining these two ideas advocated by Buffett: buy the shares of strong companies when others are afraid. Many investors are scared right now, so it’s the perfect time to take stock of strong companies.

Sometimes those stocks fell along with the general market. For example, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) it has fallen by almost 30% since its maximum set late last year. However, your business is still exceptionally strong. The shares are trading at a price-to-earnings ratio (PEG) of just 0.77, a really attractive valuation.

Other stocks, however, fared quite well during the market correction. As a case in point, Vertex Pharmaceuticals (NASDAQ: VRTX) has increased by more than 20% to date.

Great biotechnology has a monopoly on the treatment of the underlying cause of cystic fibrosis (CF). It seems to be in a good position to move into other lucrative markets outside of CF as well. Doctors will prescribe Vertex drugs and patients will take them, regardless of what happens to the bag or the economy.

3. Wait

The final step in making a fortune when stock market corrections arrive is probably the hardest. Once you buy shares of strong companies, the best thing to do is … nothing. Just wait.

Keep in mind that even a stock you bought at a discount can still go down. Before it became Alphabet, Google in early 2008 dropped by about the same amount as now. Initially, stocks rebounded, but Google shares did not maintain a positive momentum for a long time. Shares fell more than 60%.

Some investors who bought then might be tempted to bounce back and make a modest profit. Others might be scared and sell out while Google has fallen again. However, those who waited now would have a return close to 770%, and that after the recent decline.

Fortunes are rarely made in weeks or months. But they are often made for decades.

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Alphabet executive Suzanne Frey is a board member of The Motley Fool. Keith Speights holds positions in Alphabet (A shares), Berkshire Hathaway (B shares) and Vertex Pharmaceuticals. The Motley Fool holds positions and recommends Alphabet (A shares), Alphabet (C shares), Berkshire Hathaway (B shares) and Vertex Pharmaceuticals. The Motley Fool recommends the following options: January 2023 long purchases of $ 200 on Berkshire Hathaway (B shares), January 2023 short purchases of $ 200 on Berkshire Hathaway (B shares), and January 2023 short purchases of 265 dollars on Berkshire Hathaway (shares B). The Motley Fool has a disclosure policy.

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