Market Correction
Feb 28th, 2007 by Martin Lee
Just as I was writing about market volatility and risks in my previous post, the markets received a severe correction.
Dow Jones suffered their biggest drop since the September-11 incident, and my local market at one point shed close to 9% over two days.
Sometimes, when I read news articles on market movements, I really can’t stop laughing.
“This time round, it is different.”
“Market drops on investor concerns over xxxx.”
“Market drops over rise in oil prices.”
“Market drops over fall in oil prices.”
“Market rises on technical rebound.”
I can probably pre-write hundreds of such articles and keep on rotating them for publication.
Which is the cause, and which is the effect?
Value investors, remember that market volatility is your friend. If stock prices track their business intrinsic value accurately, your returns are at best what the business provides.
On the other hand, if they don’t, you can obtain a higher return than what the business would have given you.
If Mr Market quotes you a ridiculously high price for a stock, you are free to ignore him.
If he quotes you a ridiculously low price for a stock, you can take advantage of him.
At the end of the day, know the value of what you are buying and provide for yourself a margin of safety.
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