by Samuilovna

Created on: March 01, 2007   Last Updated: April 13, 2007

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.

Just do not make the mistake of buying the first cheep stock you see. Some stocks have been so overvalued that the market correction can be like a kiss of death depending on your time horizon. Do you remember how long it took the dot com stocks to recover after the bubble burst? Some of them are still far below where they were the first few weeks after the bubble burst.

Think before you send in your orders. If your money is tied up in risky stocks that you are no longer confident in, it might be a time to rebalance your portfolio. But be careful which stocks you purchase. Unresearched stocks represent a big risk, and you might be better off buying government bonds which tend to perform well when the stock market suffers. There is a reason to flee to quality.

Those who know what they are doing see market corrections as a gift from the Stock Market Santa. The rest of the populace start hyperventilating and quivering in fear when they hear a market correction is afoot. Think, do not feel when it comes to your investments. And remember that the stock market tends to grow over time. Look at historical charts if you do not believe me.

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