Patience and market corrections - September 17, 2017

Patience and market corrections

The following three rules might be useful for successful investing. As we usually say, diversification is at utmost importance. Patience is also a virtue as well as having the ability to invest at the right time. Especially when market corrections may happen.

Corrections are usually expected when several indices are at their highest points. Business climate indices like the German IFO and American ISM are good indicators for example. When they are at their highest points, the market expectations are usually too high to be realistic and some corrections are probable.

source: tradingeconomics.com

In 2007, for example, IFO was at a historical high and soon after that the financial crisis happened. Another important indicator might be unemployment and the same trend can be seen in that matter: it is at a record low lately for both Germany and the US. In the US, it’s at pre-crisis rates.

source: tradingeconomics.com

If we look at the historical data, it’s possible that soon a market correction will occur. When prices are falling, the worst thing to do is panic and start selling instruments, as prices may be lower of said instruments than at the time we bought them.

As the general wisdom goes in investment: “buy low & sell high”. This is an important rule to follow when a market correction comes. If we didn’t sell investments at the high point, it’s better to wait until prices are back again. And when stocks are low, it’s a perfect time to start investing.

Whichever strategy we chose, it’s important to execute it patiently. Generally speaking, the best investments are made for the long term. Prices may fluctuate, but usually on a 5-10-year basis prices are going upwards, creating stable return. It’s also a good idea to stay with diversified portfolios as it can protect our investment from the rapid changes of individual instruments.

What’s more, with the help of professional portfolio management, it’s even easier to stay safe. Professional companies – like Innovative Securities – create their portfolios considering the different performance of different instruments and can be prepared for market corrections in advance, usually before individual investors.

These rule of thumbs are especially important when a correction may happen.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.