Market corrections - a 🧵.
There are 3 broad types of corrections and each needs us to react in different ways.
1. A broad market correction - here the good, the bad, the beautiful, the ugly everything falls. Generally it’s a good idea to try not to ascribe stock specific reasons when we encounter such falls.
It’s also good generally to not sell in these falls unless you have a specific and defined reentry mechanism.
These falls are great to begin topping up existing portfolios especially the blue chip names or index funds in general.
We are going through one such correction now.
We are going through one such correction now.
2. Sectoral falls when other parts of market are ok- these are ominous signs that a big sectoral move is over. It pays not to get in the way of a sectoral fall. This leads to a multi month derating of the sector and it takes a long time for the sector to recover.
US tech is undergoing this type of a deep sectoral correction right now. In India pharma/API names have been undergoing this type of correction over last several months.
3. Stock specific corrections - These are very specific to stocks. You need to really introspect why your stock is falling if the rest of the market remains robust.
So the next time you encounter a fall in your portfolio see which type of correction it is.
If it’s 1 don’t try to over react, unless on leverage.
If it’s 2 look deeply if you are over exposed to a sector that’s getting derated and take steps to reallocate.
If it’s 1 don’t try to over react, unless on leverage.
If it’s 2 look deeply if you are over exposed to a sector that’s getting derated and take steps to reallocate.
If 3, figure out what’s wrong with the specific stock under question.
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