What if the U.S. market does not stabilize with a 5% loss but it heads for 10% correction instead?
In this case, you should be cheering about the fact that some hot air has been let out of asset prices. You should also be prepared to make purchases if this dip does occur. This should not be something that is difficult for you to do because your portfolio should already be in decent shape because you reduced your exposure to the weakest sectors of the stock market. Of course, you certainly are not going to escape unscathed. However if you raised some cash by selling your weakest stocks, you will be in good shape to pick up some bargains at this time. You will need to remember that the term “bargain” is a relative term.
If you are looking for stocks in the United States you should look for the price to be down by about 10%. On the other hand, if you are looking for stocks in emerging markets like Europe or Japan, you should look for stocks to be down by about 25% to 30%. After all, these emerging markets are going to be really attractive in this situation. This is because they are the most sensitive to global cash flows. Remember the first time that speculative money flowed out of these markets, these markets tanked. Well, they are going to climb just as fast, if not faster, whenever speculative money starts to flow back into them.
