Nasdaq Is Officially In A Correction Territory: What Is Next?
9 September 2020
The adage that “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” by Benjamin Graham could not be more true over the past few days.
As of 9 September 2020, Nasdaq is officially in the correction territory – which is defined as a 10% drop from its most recent peak.
So what is next?
It is worth noting that the stocks that suffered the worst sell-off since the March rout are all the US technology stocks.
Tesla lost more than a fifth of its value, about 21% in just one day.
I have often said that valuation matters in the long term. Here’s an article on my thoughts after the deepest market decline recently since June.
If a company drifts too far away from its fundamentals, it will eventually correct itself over the long-run.
If there is one thing that I have learned through my experience in the stock market is that the short term market movement is unpredictable.
The longer-term market movement, however, is more predictable, provided one does not pay an exorbitant price to participate in it.
When the disconnect between the real economy and the stock market drifts too much, the market will eventually correct itself.
My personal portfolio is equally balanced between growth companies and value/turn-around companies, and hence, overall, I am not as affected by the recent drop.
Some of the stocks I have actually gone up in value during the recent market rout.
So moving on:
#1. The market could continue to be irrational
If someone buys or sells a particular companies’ stock based on their story with disregard on fundamentals, it can go up or down in an extreme direction.
With the ease of trading in today’s environment, the market could continue to be irrational, and we can see this correction recovering back to the previous high soon.
#2 The market will be more rational
If the market is more rational, we will start to see some rotation into the companies that are better priced in relation to its future growth and fundamentals.
So if the market is more rational, my view is that there will be further selling pressures for companies that went up way too much in relation to their fundamentals.
Margin of safety is paramount in investment.
That means that we need to be patient enough to only buy when it makes sense to buy – and at a valuation that we think offers us “margin of safety” in case, we got it wrong on our business analysis and valuation.
Be rational in an irrational market.
That is the only way we can survive and make sustainable gains over the long-term.
Because ultimately, valuation matters.
Try not to overpay.
Be it growth stocks or not.
We should not FOMO and overpay – especially not after it has run up too much and the valuation starts to not be mouthwatering, investment-wise.
Remember that to finish first, we must first finish.
Was this article useful for you?
If it is, would really appreciate it if you could take one minute to share it on Facebook.
The information provided is for educational and general information purposes only and is not intended to be personalized investment or financial advice. We make no promises as to the accuracy or usefulness of the information we present.
Important: Please read our full disclaimer.
Disclosure: I am/we are long on Facebook and Carnival Corp.
Chris Lee Susanto
Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.
More from Chris
Bitcoin can be considered the world’s best-known cryptocurrency. Today is the 21st of November, 2020 and coincidentally, Bitcoin supply is also […]
I have been wanting to buy the Oculus Quest for the longest time. A few years ago, when Oculus first came out with The Oculus Quest, I wanted to […]
Based on the current trend of the mail-in ballots, it seems likely that Biden is going to be the victor of the US election in
Netflix currently has more than 65 million U.S. subscribers and about 195 million paid […] Their last hike for the U.S. price was in January 2019.
Being an avid follower of many investment and finance blogs or websites in Singapore, I thought why not I create an
1. Long-Term Challenge With Media Division The first thing that comes to mind when we hear SPH is the newspaper. And newspaper makes money through […]
There are many value investing lessons that I have learned throughout these past five, six years. For today, I thought to share with you eight of the value investing lessons […]
Elon Musk is a fantastic marketer and an innovative entrepreneur. I have been curious about the Tesla story for quite some time. And here are my five key takeaway from Tesla 2020 […]
Snowflake does cloud computing that implements a variable pricing model, which can be at times more attractive than fixed packages […]
Yesterday (3 September 2020), the US market had its deepest one day decline since June. The S&P 500 and Nasdaq had their deepest declines since June 11 and for Dow, it was their biggest decline since June 26 […]
My Bet: In 2020, The Stock Market Will Not Crash Again. Yes, it is hard to predict where the stock market is heading in the short term. But my bet with regards to virus-related concern is that I do not think that we will crash again back to March-April Lows in 2020 just because of it […]
Think About How SIA Was When Times Was “Normal” Before we got into this COVID-19 mess, SIA is already not a great business to own even when times were “normal.” All of us know that the airline […]