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title: The Stock Market Has Corrected / Crashed. Which Stocks Should I Buy?
tags: [FAQs]

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breaks: false
tags: FAQs
title: The Stock Market Has Corrected / Crashed. Which Stocks Should I Buy?
description: Corrections in the stock market aren't unusual. Do your own due diligence before buying stocks.
---

## The Stock Market Has Corrected/Crashed. Which Stocks Should I Buy?

### Market Corrections Aren't Unusual

A correction or a crash in the stock market isn't an unusual event, despite what
one might think during such an event. [According to Fidelity
Investments](https://web.archive.org/web/20200311095915/https://www.fidelity.com/learning-center/trading-investing/markets-sectors/stock-market-corrections),

> Since 1920, the S&P 500 has, on average, experienced a 5% pullback 3 times a
> year, a 10% correction once a year, and a 20% decline every 7 years.

Of course, similar behavior can also be observed in India with the S&P BSE
Sensex index in the past 20 years, starting from 1980 to 2020. According to this
blog post by [Funds
India](https://www.fundsindia.com/blog/mf-research/this-happens/17980)
([archive.org
link](https://web.archive.org/web/20210315172133/https://www.fundsindia.com/blog/mf-research/this-happens/17980)
| [archive.is link](https://archive.is/Dua4I)),

> In fact, a 10-20% temporary decline is as common as your birthday and you
> should expect this almost every year.

### Market Correction Should Never Be the Only Reason to Buy Stocks

All that being said, a market correction should **never** be the only reason for
buying stocks, unless you've already done your due diligence on the stocks
you're looking to buy.

It might sound surprising but the price of a stock is one of the least important
things about a stock. At any point in time, the price of a stock may, or may not, 
reflect the underlying business fundamentals of the company in question.

Let's assume that you didn't do any due diligence on the stocks you bought
during an ongoing market correction after asking for stock recommendations. What
would you do if the price of a stock you bought falls by more than $50\%$? Would
you sell it or hold it? What would be your reason for taking either of those 
actions?

Even if we assume that the stock recommendation comes from a person or an entity 
which apparently knows what they're doing, you shouldn't be willing to bet your 
hard earned money on borrowed conviction. They might find a better opportunity 
and sell the stock suggested earlier to buy another stock. Would they keep you 
updated every step of the way? They can also simply be wrong.

One has to realize that it's **much easier to buy a stock than it is to hold it
or sell it**. Although one doesn't necessarily needs to have conviction when
buying a stock, holding a stock requires considerable research, devotion of
time, and conviction, often in the face of extended downturns or a sideways
market, even if one knows that the underlying business fundamentals are strong.
The act of selling a stock is even harder and often the source of regrets among
investors. People often have trouble letting go of a stock they're mentally,
and sometimes emotionally, invested in, even if the stock should be sold.
Sometimes, people sell too soon and then regret it later.

[A research paper](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301277) ([archive.org link](https://web.archive.org/web/20210421091420/https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301277) | [archive.is link](https://archive.is/BFs6J)) from the University of Chicago and MIT Sloan School of Management suggests that,

> while there is clear evidence of skill in buying, selling decisions
> underperform substantially — even relative to random selling strategies.

### What Should You Do?

Assuming you've already done your due diligence on a stock and have enough
conviction to hold it in the face of possible downturns, you may go ahead and
buy the stock you want. However, if you haven't done **your own** due diligence
on a stock, it's better to stay away from it. Asking for recommendations from
others is a futile act because borrowed conviction will not help you in the time
of crisis and the person who recommended the stock may not hold the stock or
might be completely wrong.

However, if you still have the urge to buy something during a market correction,
it might be relatively better to invest more in mutual funds you already hold.