Now that we have experienced a severe stock market correction to date, what now? Is it time to buy? When buying, what stocks?
One approach that some use is to buy the stocks that have corrected the most from their most recent highs. The rationale being that those are the stocks that would have the potential to earn you the most when they bounce back to their former highs, assuming the recent movement is just that- a correction.
Following are members of the PSE index that have corrected the most:
There are two additional assumptions relating to the table:
- The stocks listed are stocks of good companies since they are part of the PSE index.
- If they were attractive investments last month, they are even more attractive now that they are priced 14-45% lower.
Caution is appropriate, however. There is no assurance that the recent move in the market is just a normal correction. It could indeed be the start of a bear market where it is not likely for the bounce back to occur. In such environment, the market goes down by at least 20% over a considerable period of time- at least 3 months. There is a change from widespread investor optimism to investor fear.