Market Correction - a Beautiful Thing?

Many investors have now experienced the anxiety of falling financial markets.  We need to remember that for every correction there is a rally and for every rally there is a correction. The old adage still applies: It's not timing the market that matters but rather time in the market.     It is no different for farmers as one sort of production becomes more fashionable and profitable than others.   It has happened for decades. 

J.P. Morgan, legendary investment banker, when asked what the share market will do next said 'it will fluctuate'.  It's important to remember that markets must go through ups and downs.  This is a characteristic of higher returning assets such as shares and property and becomes a problem only if you don't have the time to ride through those ups and downs.  It's tempting to sell an investment if its value falls.   However, history proves that having the discipline to stick with quality assets is generally a more successful strategy over time.   It's not uncommon to find a calendar year where the share market has been negative but very seldom to find a negative return in a rolling ten year period.
 
US housing and mortgage markets have been creating jitters in the share market and is being felt both here and in Australia.   As a result, investor appetite for risk is falling and the returns investors are expecting are increasing.   People want to get paid for risk, and that causes a downward adjustment to prices.   There is also a flight to better quality investments which has seen the Kiwi dollar abandoned and a subsequent fall in value.   The Australian dollar experienced a drop similar to ours.   We'll have to see whether the events of the past few weeks are the start of something more sustained or just short-term.   If our dollar continues to fall, there will be some happy exporters, however for many domestic consumers, costs will rise.
 
Years ago after a large correction in the share market, investment guru Warren Buffett was asked how he felt about the market fall.   His reply was, 'some days, I just want to get up and dance'.   He couldn't believe the abundance of investment opportunities the correction had created.   Corrections adjust share prices to their actual value or support levels and create great buying opportunities.
 
So how do investors cope with the stresses that come with up and down markets?  Stick with your long-term goals as they shouldn't have changed and by keeping focused, you make it easier to manage emotions such as fear, anxiety and greed.   Protect yourself through diversification and realize amid all the uncertainty, there is one indisputable fact that reads equally well in either market direction, there has never been a correction or rally that has not succumbed to the next rally or correction.  
 
So there has never been a correction that has not proven to be a buying opportunity. Hope for a short and steep decline, but prepare for a long one. Examine your holdings for opportunities to average down on cost per share or to increase the interest rate of fixed income securities.  It might sound strange but if everything is down, there's nothing to worry about.  
 
Visualize walking up a flight of stairs playing with a yo-yo. The yo-yo goes up and down, just like markets, and it's easy to concentrate on the yo-yo and not see anything else. But eventually you get further up the staircase, you have made ground, just like share markets. You eventually moved up regardless of the yo-yo going up and down.