When Markets Melt Down

The media always plays up the gloom and doom when markets retract. However, there is upside to this very normal occurrence.

A Buying Opportunity

When markets correct, usually the small and mid cap company stock prices are ravaged. Investors sell those first. As with larger companies, there’s usually a support level, a price floor where stocks won’t move below. However this stock floor is lower than with the big names.

That means deals. Especially with companies flush with cash. In the recent correction, I bought some names with a price equivalent to their net worth today. In other words, if they sold everything, paid off their creditors, shareholders would get their money back. Even without them earning another dime.

Quality Stock Meter

A correction is a good time to judge the perceived quality of the company. Looking at percentage decreases vs equivalent names, the industry, the entire market, investors get a pretty good feeling about how the company is perceived by general investors. Usually that’s a good representation of the quality of the company.

Reinforces Multiple Streams

If I’m receiving a 12% return on my investment in distributions, and plan never to sell my investment, do I really care that the price has went down? Sure, there’s the thought that I could have sold it, scooped the higher price, and then repurchased it at a lower price…. But honestly, I’m pretty darn lazy. Plus horrible at spotting highs and bottoms.