Stock market correction: a rare chance to get rich?

At some point this year, the stock market has dropped close to 10% in a short period of time. That fits the general definition of a stock market correction. Many individual stocks fared worse.

As an investor, it’s easy to throw up your hands and despair when the stock market tumbles. But I find it more useful and profitable to consider that time as an opportunity to buy my portfolio.

How to think about value

What happens in a stock market correction?

The price people who want to buy shares are willing to pay is lower than before. But that means the shares are worth less?

Consider a blue-chip company like Unilever or shell. The company has been building its business for decades, creating a sizable customer base and a unique market position. There may be short-term problems. Selling prices may decrease or input costs may increase, affecting profits.

But does it make sense for a company’s value to rise or fall significantly in a short period of time? For example, Unilever’s lowest share price this year is more than 20% below its high. Are the consumer goods giant’s assets worth too much?

I don’t think so. However, investors confuse price with value. The price is what I paid (in this example, Unilever shares). Value is what it is worth.

Buy cheap quality

Taking that approach, a stock market correction gave me a rare opportunity to build my wealth by buying shares in quality companies when I thought the stock price offered excellent value.

Not every stock market fall offers this opportunity. Sometimes, stock prices fall because the value of a business declines. If oil prices fall, for example, Shell’s future profits could be hurt. That would justify a lower price for the company.

But sometimes, a company sees its stock price fall with the market even though its business outlook has not changed. If a stock market correction means a fall in the share price of what I see as a quality company, it could provide an opportunity for financial gain.

If I buy shares in a great company at an attractive price and wait patiently for the long term, like the famous investor Warren Buffett, I hope I can see the value of the investment. Whether or not that makes me rich depends on the long-term return and how much I invest. But it can add wealth – and potentially make me rich!

How do I respond to the 2023 stock market correction?

Therefore, instead of waiting for the next wobble in the market, I have identified companies that I want to invest in if the price is attractive.

Thus, if there is a stock market correction in 2023, I will be ready to enter the market with confidence. I see the prospect of a fall as a buying opportunity for my portfolio – because I already know what stocks I want to buy.