What Goes Up....

          It's happening. This stock market is finally correcting. Everyone knew it would, we just didn't know when. At the time of this post, the Dow Jones Industrial index is off about 8%. I personally think there is more pain to come, possibly up to a 20% haircut or more. At times like this, all stocks are at risk of being punished. The latest good earnings report is ignored, the future expected earnings are ignored, rational decisions are not being made. Just like leaving a crowded movie theater, everyone wants to get to the exit at the same time. What should the long term investor do at a time like this? I am looking over my portfolio for positions that I want to add to. As my readers should know by now is that when I have bought shares recently, I have only bought 1/3 to 1/2 of what I wanted. That way I can take advantage of lower prices to fill out my positions. It's also a good time to consult your annual forecast and begin to position yourself according to your prognostications. You DID make a forecast didn't you? If not, it's not too late. It only takes about an hour and could make you thousands of dollars. Some of the new positions that I want to add to my portfolio includes at least one FANG stock and one defense related company like Lockheed Martin. These issues have been just too rich for my blood so I'm looking for a more attractive entry price. Having cash on the sidelines at a time like this gives me peace of mind and ammo to gun for bargains. There is one group of investors who are dancing in the streets right now- they are the short sellers. As described in my post "the short sale", these guys profit from a declining market. They have had a long dry spell so I hope they are happy now. At some point, short sellers will have to "cover" their positions which will help end the slide. That means that they will have to buy the shares that they had borrowed and sold. This short covering plus bargain hunters, will eventually put a floor under stock prices. In my opinion, what really spooked this market is the fact that the yield on the 10 year treasury bill got too close the that 3% point. It reached about 2.84% before the sell-off. One major fear of wall street professionals is what is called an inverted yield curve. It almost always predicts a recession. Basically, an inverted yield curve is when short term rates are higher than long term rates. Buying a 30 year bond is riskier than buying a 10 year instrument and thus should yield more. In conclusion, this sell-off is long overdue and actually healthy for the market. Stocks had simply gotten ahead of themselves and this shake-out will help determine their fair value.