Is A Market Correction Coming?

    Published: 06-16-2009
    Views: 4,953
    Motley Fool Financial Analyst, Jason Moser, discusses whether or not you can expect a market correction.

    Jason Moser: Hi! I'm Jason Moser, analyst with the Motley Fool and a question we deal with all the time it seems with investors is they are wondering when is the market correction coming? Should we expect the market correction? And I think the easier answer to that question is yes, you should expect the market correction. But I think the question is really more relevant to the timing part of it as to when should we expect the market correction, that's a little bit more difficult not really sure, we're not market timers here at the Motley Fool for example.

    But let's define a correction first and foremost and that's a pullback in the market of at least 10% and we see those from time to time especially if the market gets a little bit ahead of itself or looks a little bit expensive.

    So definitely corrections happen, it's not something that needs to really concern yourself with, it's really difficult to predict when they may happen. But we look at today's environment for example with interest rates very low, the stock market has been the place to be, it says where the returns are, so you have a lot of money going into the market. I think a lot of people are chasing yields looking for those dividends stocks because fixed income investments are necessarily as rewarding. We are seeing record inflows into U.

    S. stocks and this demand pushes those prices up.

    But I look at something that Warren Buffett has said, time and time again and even today, when he looks at the market is relatively fairly valued. He is always of the mindset that net buyers of stocks need to be looking for those corrections and times when stocks pull back and I think that's important to know because it gives us an opportunity to pick up stocks on sale more or less, at better prices.

    But if you have money to invest today for example, take $5000 yes, get that invested in the market but don't feel like you have to get everything going in there at once, invest it slowly. Make sure you keep your transaction cost to know more than 2% of your investment and let's look at an example there, if your commission cost to buy a stock it's $7 then, make sure you buy at least $350 worth of stock in order to meet this threshold that keeps those commission cost low they can tend to eat into your returns if you let those commission cost get out of hand.

    But when we look at something like that do you have a watch list? If you don't make sure you start building a watch list, when you have some money to invest so that you have these names ready to go when you feel like the prices become attractive and you add to those positions.

    Now the bottomline really is that for us foolish investing means constant investing, it's not trying to time the market. We're not trying to look for market corrections we are simply trying to invest in the good times and the bad in quality businesses and again, I always refer back to Warren Buffett's idea there, with net buyers of stocks. Net buyers of stocks should love market corrections because that means we get to buy our favorite stocks on sale. I totally agree with this.

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