The generally accepted definition of a inventory market correction is a decline of no less than 10% from a current peak. If the decline extends to twenty% or extra, then it’s characterised as a crash — or bear market.

A full-blown market crash is fairly uncommon, with solely a handful occurring prior to now century. Corrections are way more frequent, sometimes occurring each few years. Inventory exchanges world wide have skilled a number of corrections because the twenty first century started.

It’s unattainable to foretell precisely when a correction will occur. It appears logical to imagine one may happen after a protracted interval of constant development. However because the adage goes: “The market can keep irrational longer than you possibly can keep solvent“. 

In different phrases, there isn’t a assured solution to predict a market’s strikes and lots of have gone broke attempting. However historical past has proven that most often, corrections are momentary. So reasonably than one thing to worry, they need to be considered as a chance.

Preserving money apart

I’ve a good amount of money put apart in an simply accessible financial savings account. It solely returns round 5% on common per yr but it surely’s secure and dependable. I may dump all this money into no matter tech shares are trending this month but when issues go south, that cash is tied up — until I promote at a loss.

I favor to have it available for when an sudden market correction serves up a wealth of excellent funding alternatives. If I don’t, I may miss out.

Making good decisions

It may be a bit daunting selecting to take a position throughout a market correction. Nothing actually seems to be like a very good choice when costs are all falling. Which shares ought to I select? How can I do know when the costs will cease falling?

Sadly, there’s no assured one-size-fits-all resolution. However some preparation can assist. Having a good suggestion of what shares you’re enthusiastic about beforehand is an effective begin. That means, I can hone it down to 4 or 5 and determine from there.

Right here’s one inventory on my wishlist that I’m prepared to purchase when the market corrects.

ARM Holdings

Though listed within the US, ARM Holdings (NASDAQ: ARM) is a British semiconductor and software program design firm. It capitalised closely on the AI increase — and did spectacularly effectively. 

The share price is already up 150% since its IPO lower than a yr in the past. That’s nearly an identical to the parabolic development of Nvidia. Not stunning, contemplating the semiconductor big is one among ARM’s greatest clients.

There’s no denying it’s performed effectively since going public. However that will all change quickly. Revenue margins this yr are already down to 9% from 19%. And with earnings solely a fraction of the market cap, some analysts are calling the inventory “grossly overvalued”.

I believe I’d get my low-cost shopping for alternative quickly. One analyst has set a 12-month price goal of $66 per share on the inventory — a 52% decline from present ranges. 

ARM is about to report its fiscal first-quarter earnings in just a few days, on 31 July. As soon as these outcomes are posted, I’ll have a greater concept of the place the inventory is headed.

Till then, I’ll be prepared and ready.