Is it Time for a Shopping Spree? What to Do During a Market Correction

Stocks tumble, sometimes with double digit percent decreases, when a market correction occurs. But that is no reason to panic. Remember the stock market is run by two factors: psychology and mathematics.

When bad news is revealed, people panic and sell off their most risky investments. Some people liquidate everything. This drives down stock prices. Intensely bad news can lead to a market correction, so previous highs are eliminated, and the stock market reaches the level where it truly belongs.

What does this mean for you, the investor? It is time to go on a shopping spree. The stocks that you have been keeping an eye on for quite some time have fallen, so you can buy them cheap.

Pick the stocks that popped up on your stock screens -- those showing signs of good managements, rising earnings per share, low debt to equity, and a good business model. One example that the experts are touting is Nutrisystem (NTRI). Yet do not forget to do your own research beyond picking the top few stocks on your screen. Read and analyze the latest annual report, latest press releases, and latest articles about the company. You need to know what is currently going on with this stock. Take a glance at message boards; they contain propaganda for and against the stocks discussed, but sometimes they have useful information, such as links to analysis of the stock you are researching. Know how to filter the useful information from the garbage. And take a look at the stock charts. You may not want to buy a stock at its 52 week low if it spent the whole year dropping in price. How do you know the stock will rise within your investment horizon? For those who use technical analysis or value analysis, run your calculations and see if the stocks that interest you are worth buying. However, I suggest doing all this before the correction. Build up a shopping list and wait for a sale. When the time is right, go shopping.