4 ways to cope with a stock market correction

Hot on the heels of yesterday’s market plunge, Dean Fergie, Director & Portfolio Manager of Cyan Investment Management, shared on Livewire four ways to cope with a correction.

The All Ordinaries had dropped around 10% in less than two months, which is why it was being called a correction.

Here are the four coping strategies:

1: Remember the long game

Investing in the share market can be stressful if you see your portfolio fall by hundreds or thousands of dollars in a day.

But, remember that a share is not a gambling chip. There is an underlying business such as Macquarie Group Ltd (ASX: MQG) that probably has assets, a history, revenue and so on to keep growing in the future.

The share market has delivered an average long-term return of around 10% despite all of the crashes throughout history.

2: Clean out your house

Mr Fergie suggested that a bear market is a good time to consider each share in your portfolio.

He said that owning a share only because ‘you think they’ll go up’ is not the same as having long-term positive fundamental expectations.

3: Refrain from fighting against it

When the share prices of businesses you believe in falls, we want to show that the market is wrong and aggressively buy into the weakness.

It is a good idea to top up your holdings of your best ideas, but trying to win a fight with the market can be a bad idea.

I’m reminded of the quote “The market can remain irrational longer than you can remain solvent.”

4: Don’t bother listening out for the bell

Nobody can call the bottom or top of the market. It would be silly to sell everything and try to buy back in at the market bottom.

The bottom is only evident in hindsight. For example, the ASX rose 25% in two months after the GFC. It also rose 14% in just four months of 2016. You could miss out on these gains if you’re not invested.

Foolish takeaway

I’d definitely agree with Mr Fergie about his strategies here. It isn’t pretty viewing for your current portfolio of shares, however these falls usually present good opportunities if we stick to quality growth shares like Costa Group Holdings Ltd (ASX: CGC) and Challenger Ltd (ASX: CGF).

Another quality share I’d be happy to own through a share market plunge is this defensive share which could continue being an exciting market-beater.

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and COSTA GRP FPO. The Motley Fool Australia owns shares of and has recommended Challenger Limited and COSTA GRP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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