Mad Money

Expect Corrections, Don’t Fear Them

There’s no magic formula to keep you from losing money in the market. There’s no advice Cramer can give that will make all your stocks winners. To put it simply, there are only two kinds of investors: the kind who has lost a lot of money at one point, and the kind who’s going to.

Not that it’s not natural to want to pack it in after a big loss, but corrections of all kinds, whether in a stock or the whole market, are a part of investing. Knowing that they’ll inevitably happen at some point can soften the blow.

You don’t want a correction to scare you out of the market because you can end up missing some nice gains. Just look at the S&P 500 throughout 2006. On May 11, the index started its decline from 1,322 to 1,220 by mid-June. People were acting like the world was ending, Cramer said. But by December the S&P had roared back past where it was before the correction, moving up to 1,400. Cramer doesn’t recommend being a perma-bull, but this is proof that holding on through the rough times can be worth it.

Bottom Line: If you’re emotionally prepared for a correction, for a steep, unexpected downturn in one of your stocks or your whole portfolio, then you won’t feel so terrible, and you won’t decide to give up on the market, one of your best chances to make lots of money. 

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