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Bigger market corrections occur sometimes times each year but normally we become aware of them only after some years of growth. Everybody should know that there it occurs and there is no way around it. Markets in general move in cycles. But reaction with advantages and to get a profit for the investor is ever possible.

If you view the stock market historically then it has spent much more time on bullish times than on bearish retreats. Such general cycle of the stock market is the reason why investigation on stocks is a good investment over the range of years. The characteristic of the stocks also is that the market has the tendency to retrench more than the average investors would like to believe about. The definition of a bear stock market is a 20 percent or bigger decline in market prices as measured by the S&P500, the Dow Jones Industrial Average, the DAX, the stoxx50 or an other important index from all over the world. A full-fledged bear stock market can stay for many months or, in very rare cases for several years. But all over the years normally indexes are increasing. 

It also happens that some corrections, on the other hand, are very hard for the investors, but some, lasting only a day or two days or for a few weeks of the year. An example: The S&P 500 point drop in October 1987. It occurs that sometimes a short, dramatic fall down serves as a prelude to a much lengthier downturn. The 1929 crash last century resulted in a following several years bear stock market, which saw the Dow Jones lose almost 90 percent of its complete further value. This illustrates the latter horrible possibility for everyone who is investigated in the stock market.

The securities-industry and also the government are still learn from the experiences with previous stock market declines. New regulations of the government which have been established after this bear market of 1929 have later on helped to prevent another decline of similar horrible magnitudes. As an example, requirements of margins were increased from 10 percent up to 50 percent to have a prevention of the investors from becoming excessively leveraged respectively indebted in that way many of the investors were affected in the months following the crash in 1929.

After the 1987 correction phase of the stock market more refinements were introduced. That included also our current market system of circuit-breakers. In general theory, these circuit-breakers allow as a result a decline over several days/weeks rather than allow it to gain momentum at once. The additional time which has been given would help to prevent a panic selling of the investors.

Market corrections still occur and that is important, but the panic effects are reduced. Although the securities industry is committed to do all possible its power allow to protect the global investor. It is absolutely necessary for investors of the stock market to take their own responsibility for their activities and to arm their investments with as much knowledge about the stock market as they can get about the risks of it and potential rewards of their investigations.

The Cowles Commission, which was introduced to help investors through the aftermath of the 1929 crash in the 1930s. This commission came up with five essential points for successful investments, which are still applicable today and true.

7 essential rules for successful investing

1. Your should invest for the long term.

While the market can be extremely risky over the short periods the risk decreases continuously as your investment time horizon becomes longer. A good help for investments is that bond and stock money should be funded with money you do not need for at least five years.

2. You must invest systematically.

It is one way to diminish the timing problem if you use a simple method which is called money-cost averaging. With the money cost averaging method you invest a fixed amount of money in a special investment at special intervals. The amount you invest the best for the stock market should be a constant amount. With this method the investor buys more shares at the moment when the rate is low and fewer shares when the price at the stock is high. The result of this investing method will be that the average you pay for each share is tending to be lower than the average market value of the whole investment over the same period at the stock market.

3. Market timing.

Some of the people who invest money at the market hope to get more money back by selling a portion of their account just before a correction occurs. But such behavior, such a “market timing” is a thing that even for the  professionals it is more than difficult with any consistency and investments in this way is in no way recommended for an average investor. But who of the persons who invest money at the stock market accepts really to be an average investor?  If you look aside from difficulty of to identify the beginning of a new market increasing or decreasing phase and the end of such at phase there are the important emotions of each investor of fear and greed. Both emotions work strongly against those tactics who attempt market timing. There exist a constant tempt to overstay their stock positions in a bull market and to remain still on the sidelines for nearly ever to too long in a real bear market. Market timing is more than difficult.

4. You must diversify investments.

When thinking about investigations in stocks, many persons probably envision comparing the merits of various different stocks. But there are so many basic things which have to be done before. When investors get to that decision, there has a more important step to be done: That is the asset allocation. Asset allocation is defined a the percentage of investment funds someone allocates among different classes of assets such as for example cash equivalents, stocks, tangibles respectively real estate and fixes income.

5. Money-cost averaging.

It must be ever in your thoughts: Dollar-cost averaging is not able to eliminate the all the risks of investments and also this method can not give you the guarantee to get a profit and it also do not protect the investor against a loss in general declining markets. The success of such a  investment solution is dependent on making regular purchases through advancing and declining market fluctuations and also on selling when the invested money has a value more than the average amount you have paid before. Since such investments plans includes a continuous investment of money in securities, each one who invests money should consider the financial possibility to continue in the same way also through the time when there exist low levels of the prices. But the method money-cost averaging does is a really disciplined method to invest the money in the security markets and reduces the price you have to get to the point break even. It is your choice to do so.

The final decision is a really important one. A scientific study of large pension funds gave the result that the allocation of a pension manager among different classes of assets had a far bigger long-term effect on the return rates than the individual securities one person has selected. Nevertheless, asset allocation and also the method  investment timing really can not eliminate all the risks of uncertain return rates or fluctuating of prices.

6. Researches have shown: Buy quality.

Many investors like especially initial public offerings (IPOs) and buy them periodically. IPOs can be a very good investment for those who know how exactly how to invest in them and understand the possible arising risks. By definition with the name  IPOs are involved all the companies which stocks are not tested in public trading. But the normal investor should work in this area only extreme cautiously and invest no more than only a small percentage of the whole investment money to initial public offerings.

At the other side of the spectrum are so many enterprises with a long history of earnings and they still grow consistent in their sales. Everybody should ever have in mind that there never is anything which gives a warranty in the investment markets. But there is a lower possibility that such over years growing enterprises will drop off the investment map during such drastically correction times. Rather such a correction presents money investors with the possibility to acquire more stocks of historically seasoned, well established companies at low prices they will never get again in future. But the risks!

7. For everyone who is unsure of investment, get professional advice. 

All people have got a different outlook and level of sophistication to the different investment forms. Most of the people can benefit from professional information input. Professional help can be so much:  Advice on asset allocation, individual securities or entrusting money to professional portfolio managers. Professionals for investments are great resources for helping people to achieve their goals regarding their finances for the most secure investments that are possible. Particularly during enormous correction periods professional assistance helps a lot to have a strategy for the investments worked out in advance of the recent corrections and to be able to keep that strategy for which you have decided clearly in mind mostly without influence by sudden events 

. Also in such times a qualified investment professional can help to plan a recent sound investment strategy and a strategy for the future.

25.05.2018



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