======Market Correction======
A Market Correction (often just called a 'correction') is a fancy way of saying the market has taken a breather. Specifically, it's a decline of at least 10%, but less than 20%, in a major [[stock market index]] like the [[S&P 500]] or in the price of an individual [[asset]], from its recent high. Think of it as a sharp, but usually short-lived, drop. Corrections are a perfectly normal, even healthy, part of the market cycle. They shake out speculators and can bring prices back to more realistic levels. Unlike a much scarier [[bear market]] (a drop of 20% or more), a correction doesn't necessarily signal a deep-seated economic problem. It’s more like the market letting off some steam after a strong run-up. On average, they happen about once every couple of years and typically last for a few months before the market resumes its upward trend. They feel unsettling, but for a prepared investor, they are more of an opportunity than a crisis.
===== Why Do Corrections Happen? =====
Markets don't go up in a straight line; they zig and they zag. Corrections are the 'zags'. They can be triggered by a whole cocktail of factors, often a combination of several at once:
  * **Geopolitical Events:** Wars, political instability, or trade disputes can create uncertainty and spook investors into selling.
  * **Economic Data:** Unexpectedly high [[inflation]] numbers, sudden changes in [[interest rates]] by a central bank, or weak employment reports can cause a swift market reaction.
  * **Overvaluation:** When stock prices get way ahead of corporate earnings and [[economic fundamentals]], the market becomes like a stretched rubber band. A correction is the snap-back to reality.
  * **Investor Psychology:** Sometimes, fear itself is the trigger. A small dip can snowball as nervous investors rush to sell, causing a domino effect known as panic selling, which increases market [[volatility]].
===== Corrections vs. Bear Markets: What's the Difference? =====
It's easy to confuse the two when prices are falling, but the distinction is crucial. It’s like the difference between a bad thunderstorm and a hurricane.
  * **A Correction:** Is a //10-20% drop// from a recent peak. It's usually a short-term event, often lasting a few weeks to several months, and is frequently just a pause in a longer-term [[bull market]].
  * **A Bear Market:** Is a //decline of 20% or more//. These are more severe, can last for many months or even years, and are typically associated with a broad economic [[recession]].
The key takeaway: while every bear market starts with a correction, not every correction turns into a bear market. In fact, most don't.
===== A Value Investor's Perspective on Corrections =====
For disciples of [[value investing]], a market correction isn't a reason to run for the hills. It's a reason to go shopping. As the legendary [[Warren Buffett]] famously said, //"Be fearful when others are greedy, and greedy when others are fearful."// Corrections are the ultimate test of this mantra.
==== Don't Panic! ====
The absolute worst thing you can do during a correction is panic-sell. Selling after a 10% drop just locks in your losses. Remember, corrections are normal. The market has recovered from every single one in its history. Selling is an emotional reaction, not a strategic one. Your well-researched portfolio of strong companies hasn't suddenly become worthless overnight just because the market is having a tantrum.
==== An Opportunity, Not a Threat ====
Value investors hunt for bargains—great companies trading for less than their [[intrinsic value]]. A market correction is like a store-wide sale on quality stocks. Suddenly, the wonderful businesses on your watchlist that were too expensive last month might now be trading with a significant [[margin of safety]]. This is your chance to buy shares in excellent companies at fair, or even wonderfully cheap, prices.
==== Practical Steps During a Correction ====
Instead of panicking, take action. Here’s a simple game plan:
  - **Review Your Portfolio:** Re-examine your holdings. Are the fundamental reasons you bought these companies still valid? If yes, hold tight.
  - **Consult Your 'Wish List':** You should always have a '[[wish list]]' of great companies you'd love to own at the right price. A correction is the time to see if any have hit your target price.
  - **Deploy Cash Strategically:** If you have cash on the sidelines, this is the time to start deploying it. You don't have to go all-in at once. Using a strategy like [[dollar-cost averaging]] by buying in stages as the market falls can be very effective.
  - **Turn Off the News:** The 24/7 financial news cycle thrives on fear. Watching it will only heighten your anxiety and tempt you to make poor decisions. Stick to your plan, not the headlines.