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How to Rake in the Money in a Stock Market Correction
A stock market correction, typically defined as a decline of 10–20% from recent highs, can be a nerve-wracking time for novice investors. However, it also presents unique and Bonafide opportunities to make money. Here are some strategies to play in a market correction profitably.
1. Identify Undervalued Stocks
Corrections often cause indiscriminate selling, pushing even high-quality stocks to bargain prices. Look for companies with strong fundamentals, such as consistent earnings, solid cash flow, strong dividends, and competitive advantages, that are now trading at a discount. Tools like price-to-earnings (P/E) ratios and price-to-book (P/B) ratios can help identify bargains.
Example:
If a blue-chip stock with a historically stable P/E ratio of 20 drops to 15 during a correction, it might signal a buying opportunity.
2. Invest in Defensive Sectors
Defensive sectors, such as healthcare, utilities, and consumer staples, tend to perform better during downturns. Companies in these industries provide essential goods and services, making their revenues more stable regardless of economic conditions. You just can’t go wrong with investing in companies which provide basic needs.