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.
Especially For Ambitious Professionals and Business Owners
- Our Telegram Channel – If you’d like to hear interesting stuff daily on stocks, business, economy, and value investing knowledge, please join our free telegram channel here.
- By Invitation-Only Mentorship – We specialize in coaching (1-on-1) ambitious professionals and business owners looking to learn how to invest in stocks safely and sustainably. The results from our mentees have been amazing so far. Learn more about The Mentorship here.
More from Chris
Snowflake does cloud computing that implements a variable pricing model, which can be at times more attractive than fixed packages offered by more prominent competitors. The market for […]
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 […]
In this article, I’d like to share eight signs of potential fraud in our stocks portfolio that we should be careful of. These are eight simple potential warning signs of bad financial reporting or early markers […]
3. As of 1H20, Most Earnings Paid Out As Dividends Based on AEM 1H20 reports, their cumulative capital allocation breakdown from 2017 to 1H2020 is as follows: Dividends – 47%, Acquisitions – 25%, Capex – 18%, Buybacks – 10%. It is interesting to note that […]
Eastman Kodak Company (NYSE: KODK) opened at $2.15 (Monday) on July 27, 2020, and closed at $33.20 (Wednesday) by 29 July 2020. That is a 1,444.19% increase over a two day period. In this article, I am going to give you some background on the Kodak company, the reason […]
Last Friday on 24 July 2020, Intel closed 16.24% down. Although I do not own any Intel stock, I was curious why it fell after releasing its Q2 2020 results. Just a while ago, I saw the news that after 15 years of partnership, Apple decided to break up with Intel and stop using its […]
1. Temasek Portfolio is Huge. Although I know that Temasek has a huge portfolio, I was surprised to see that it is around the size of Warren Buffett’s. As of 31 March 2020, the net portfolio value or NPV is at S$306 billion. So we have our own Warren Buffett in Singapore, that is […]
Who is Adam Smith? Adam Smith (1723-1790) was a philosopher and economist who was best known for authoring the book An Inquiry into the Nature and Causes of the Wealth of Nations. Wealth of Nations also happens to be one of Warren Buffett’s favourite books […]
As a value investor, as a practitioner of value investing, I am very interested in studying funds I view as an executioner of the various value investing methodologies I myself am very passionate about. In this article, I will list down some of the value investing funds in […]
Being a successful investor requires us to have equanimity in everything we do. There are many benefits to keeping a gratitude journal, firstly, the balance of emotion. Would you rather make $100,000 a year but all your friends and neighbors make $200,000 a year or […]