What NOT to do during the Next Market Correction

financial newsThe markets were up big in 2012 but that doesn’t mean that 2013 will be the same. The markets could end up by the same amount of they could head lower. The point is that nobody knows and all an investor can do is make plans for when the next market correction arrives.

The fiscal cliff has caused a small market correction but what about when the next big one arrives?

The best investors know that understanding the market and how it is behaving is key to knowing what to do next and they know that the market won’t rise much longer without experiencing a correction. What should you do to protect your finances? Here’s what the professionals WON’T do once the market enters a correction.

They Don’t Trade Just to Trade

First, when the market is challenged, traders know that activity for the sake of activity won’t produce results. Short or medium term market pros are often nimble. They move in and out of positions as markets warrant and not only does it often not work well for them, it’s highly unlikely that it will work for a retail investor without the training, experience, and information that the pros have.

When the market is challenged and you’re unsure of what will happen next, do nothing. Collect dividends, hold your strong positions, and wait for the market to give you more direction.

They Don’t Chase Return

Everybody has their own trading strategy. Famed investor Dennis Gartman says to buy high and sell higher, challenging the conventional wisdom of buying low and later selling high but most investors know that chasing returns is a bad idea. In the past year, Apple has seen a 50% gain in price but for investors who bought when Apple was near its top have felt the pain lately. Being late to the investing party is often a recipe for failure. If you want to invest during challenging markets, find a quality company or sector that is beaten down and put your money there.

They Don’t Invest if they Don’t Understand

Just because they’re pros doesn’t mean they have knowledge of all investment products. Some specialize in commodities, some in bonds, and others in stocks. Many specialize even more than that. Some people recommend that retail or part time traders invest in stocks and sectors related to their work life. If they’re in the health care field, invest in the healthcare sector. Technology professionals should look at the tech. sector. Good investing starts with having knowledge of the products you use to make money and using the expertise you already have can cut down on your research time. Diversifying your portfolio is key but if you’re engaged in short term trading, stick with the products and sectors you know well.

Bottom Line

Investing isn’t only about making money but more importantly, about not losing what you have. Challenging markets call for conservative investing. Save the big risks for the next bull market.