The Dow Jones industrial average (INDEXDJX: .DJI) index plunged 1,000 points yesterday night.
At first glance, it sounds like a dreadful decline. But let’s put it in perspective.
In percentage terms, the index fall is around 3.6%, much less painful than what a four-digit decline suggests. In fact, from its 52-week high, the DJIA is down less than 5.5%, hardly qualifying as a correction.
What’s more, the DJIA consists of 30 companies only.
The S&P 500 (INDEXSP: .INX), an index with 500 companies, serves as a better proxy for the overall market sentiment.
Yesterday, the S&P 500 fell around 3.4%, closely matching the DJIA’s percentage decline. From its 52-week peak, the S&P 500 has declined less than 5%.
Again, that hardly qualifies as a correction.
What to do now
If yesterday’s stock market decline serves up discounts to the stocks you are eyeing, it could be a good time to pick up some shares on the cheap.
But you don’t have to act if there are no discounts.
And you certainly do not want to buy stocks that you don’t need. In addition, stocks that fall the most might not necessarily be the best stocks to buy.
If you fear that a recession is just around the corner, then your focus should be on companies with strong, profitable businesses, and armed with loads of cash on hand.
Of course, a good business is always what you should be hunting for in good times too.
In other words, keep calm and carry on. This, too, shall pass.
Disclosure: Chin Hui Leong does not own any of the shares mentioned.