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.
See also: Our free telegram channel for high-performing professionals who wants to learn investing.
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.
Read also: My 3 Thoughts on Yesterday’s Deepest US Market Decline Since June
In Conclusion
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.
Also read: Will The Stock Market Crash One More Time in 2020?
Was this article useful for you?
If it is, would really appreciate it if you could take one minute to share it on Facebook.
Disclaimer:
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
GoTo IPO: Will I Invest in The New Company of Gojek and Tokopedia?
GoTo IPO date is on 11 April 2022. Analyzing their prospectus, will I invest in […]
Russia-Ukraine War: How to Keep a Level Head And Invest Long Term
In this article, I will be sharing my opinion on how to keep a level head and invest […]
I Recently Got Covid. Here’s How It Affected My Investment Outlook
In this article, I will be sharing my journey on recently having acquired COVID-19 and […]
22.70% vs 15.19%; My Performance vs S&P 500 for Close to 7 Years
In this article, I am going to try to condense what I have reflected on, learned, and applied through […]
3Q 2021 Update to My Carnival Corp Stock Thesis
In June 2021, I wrote that I think Carnival Corp stock is likely going to sail higher in 2021. It took a […]
What is Sustainable Stock Investing and Does It Work?
What is Sustainable Stock Investing? ESG/ sustainable investing is a form of investing that is generally […]
Top 10 Warren Buffett Quotes on Investing | Re-ThinkWealth.com
Is FB a social media company? An advertising company? Or a chat company? Or a VR company? Online […]
Quick Analysis on FB Stock by Re-ThinkWealth.com (August 2021)
Is FB a social media company? An advertising company? Or a chat company? Or a VR company? Online […]
Growth or Value Investing? Why Not Both? – Re-ThinkWealth.com
Both value and growth investing have the same goal: which is to find the biggest opportunity or a gap or […]
Will Carnival Corp Stock Sail Higher in 2021? (June 2021)
“Carnival” based on the Oxford dictionary can also be defined as “a traveling funfair or circus.” The name is apt for a […]
Here Are My Quick Analysis on Palantir Technologies Stock (June 2021)
Palantir is a company that provides large organizations with a minimum of $500 million in revenue the ability to […]
High dividend yield, blue-chip stocks, is it safer? | Re-ThinkWealth.com
Many investors love to invest based on dividend yield alone. They think that dividend stocks are safe, but are all of […]